Brazil anhydrous ethanol prices surge 65% in one month

13 April 2011 19:10  [Source: ICIS news]

An ethanol plant in BrazilHOUSTON (ICIS)--Brazil’s anhydrous ethanol prices remained on a sharp uptrend, rising by 65% from a month earlier on continued tight supply, market sources said on Wednesday.

Anhydrous ethanol was sold earlier in the day at Brazilian reais (R) 2,650/cubic metre (cbm) ($6.31/gal), which is up from deals done in a range of R1,600-1,610/cbm four weeks ago, as assessed by ICIS. The product traded in a range of R1,000-1,020/cbm in the same week of 2010.

Brazil blends anhydrous ethanol in gasoline at a mandated 25%.

Anhydrous ethanol supplies tightened significantly in the first quarter, following the end of the sugarcane harvest in December.

Meanwhile, demand for the product is increasing because Brazil is consuming more gasoline as a result of higher hydrous ethanol prices.

Hydrous ethanol can be used as a standalone fuel in flexible-fuel vehicles (FFVs), but the price of the biofuel also rose sharply in the first quarter, causing it to lose market share to gasoline in most of Brazil.

Anhydrous ethanol prices were not expected to drop at least until mid May, when supply from Brazil’s recently started centre-south sugarcane harvest will begin to enter the market, sources said.

The centre-south accounts for 90% of Brazil’s ethanol production.

Market sources said anhydrous ethanol imports from the US arrived in Sao Paulo earlier this week, but the shipments were still awaiting customs clearance at the Santos port on Wednesday.

The cargoes were estimated at some 100m litres. The same amount of US ethanol was also shipped to the northeastern region, where Brazil’s smaller sugarcane harvest was just ending.

The northeastern sugarcane harvest runs from September to March/April, whereas the key centre-south harvest runs from April to November/December.

US shipments could cap the sharp uptrend in the anhydrous market, but sources did not expect that imports alone would push prices down.

Anhydrous ethanol prices could even gain further ground, a source predicted, citing continued rainfall in the centre-south and a slow start to the 2011-2012 sugarcane harvest.

The centre-south has around 350 sugarcane mills, most of which are expected to be in operation by the end of April.

According to sources, some 40 units began operations in the second half of March, while another 140 mills were starting production in the first two weeks of April.

The rapid and unprecedented surge in anhydrous prices has triggered talk that Brazil’s Petroleum Agency (ANP) may start regulating the ethanol sector, treating it as a “fuel” rather than an agricultural commodity.

The surge in the price of ethanol, which accounts for about half of Brazil’s motor-fuel consumption, has stoked fears of higher inflation, something the new Brazilian government would likely go to any length to avoid.

Media reports in Brazil last week also indicated the government was considering taxing sugar exports in the future.

The restriction could be a means to secure ethanol supply for the fuel market by discouraging sugarcane mills from seeking higher returns in the international sugar market.

Market sources had mixed opinions on the possibility of increased government regulation in the sector.

Ethanol is a strategic fuel and the country depends on it, a broker said, adding that it was justifiable for the government to seek ways to guarantee supply.

But other sources viewed potential regulation as government meddling in the private sector.

“It is terrible,” an ethanol producer said, downplaying the reports as political grandstanding.

Another source pointed to possible damage to Brazil’s reputation as a business-friendly country.

“This would be very bad for Brazil… but maybe it was a way to send a message to the sector,” the source said, indicating that the government would not allow ethanol shortages to hurt the economy, while sugarcane mills were increasing profits on the sugar side.

Brazilian sugarcane industry association Unica defended the sector in a newspaper article on Wednesday, saying bad weather last year, not higher sugar prices, was mostly to blame for tightness in ethanol supply.

Unica said extremely dry weather in 2010 caused a loss of some 5bn litres of ethanol.

But the group acknowledged that centre-south sugarcane mills last year produced an extra 5m tonnes of sugar at the expense of 3bn litres of ethanol.

Sugarcane mills could have opted to make ethanol but that would result in a significant loss of profitability for the sector, Unica said.

($1 = R1.59)
($1 = €0.69)

For more on ethanol visit ICIS chemical intelligence
Doris de Guzman examines alternative processing, new technology, R&D and other sustainability initiatives in Green Chemicals

By: William Lemos
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