Brazilian ethanol sector ponders effects of stimulus package

09 May 2013 17:53  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--Ethanol producers in Brazil, the world’s biggest ethanol exporter, are trying to interpret on Thursday what effect the recent stimulus package will have on the sector.

The official publication on 8 May of the Provisional Measure 613 and Decree 7.997/13 has caused stagnation in the sector, as market players try to interpret the effect of the changes.

The main objective of the stimulus package, which was unveiled in April, is to encourage producers to invest more in biofuel production by increasing the supply of the product, to lower the price of fuel at the pumps.

The package included credit lines specifically set aside for the sector, interest rate reductions and a reduction of the tax burden on producers.

Market players are interpreting the provisional measure to mean that distributors are exempted immediately from payment of Brazilian reais (R) 72 ($36, €27) tax, according to sources in the sector.

It will be the responsibility of the producers to collect the R72 payment and incorporate it into their pricing.

"This will lead to higher prices in the plants, but in counterpart, will relieve the distributors," a source said.

The plan comes as ethanol mills start processing a record sugarcane crop and gasoline imports by state-run Petroleo Brasileiro (Petrobras) rise, sources in the sector said.

Ethanol output in Brazil, where the fuel is made from sugarcane, will rise to 25.8bn litres (6.8bn gal) in the 2013-2014 crop year that started this month, from 23.6bn in the previous season, the government said on 9 April.

Brazil increased its ethanol blending rate to 25% from 20% on 1 May.

Brazil blends anhydrous ethanol into gasoline. The country uses hydrous ethanol as a stand-alone fuel in flexible-fuel vehicles, competing directly with gasoline.

Brazil had lowered the blend rate to 20% in October 2011 because the country had insufficient supplies of anhydrous ethanol to meet demand.

($1 = €0.76)
($1 = R2.00)

By: Leela Landress
+1 713 525 2653

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