Price and market trends: Brazil ethanol prices decline on ample supply, dry weather

16 May 2014 09:57 Source:ICIS Chemical Business

Around 300 ethanol plants were expected to restart following the resumption of harvest season

Brazilian ethanol prices have fallen sharply due to significant new volumes of product making its way into the market following the restart of the 2014-2015 sugarcane harvest crush season.

Prices as of 6 May were as low as Brazilian reais (R) 1,350-1,400/cubic metre ($605-$628/cubic metre) for hydrous grade and R1,480-1,530 for anhydrous grade, as assessed by ICIS. The changes represent a reduction of R40-50 in anhydrous prices and R100-120 in the hydrous grade compared with ICIS assessments a week earlier.

The drop was expected because by the end of April all estimated 300 ethanol plants in the centre-south of Brazil, the most important ethanol producing region in the country, were expected to have restarted operations following a three-to-four-month shutdown corresponding to the period in between harvest, sources said.

As their output reaches the market, the greater supply helps reduce prices. Prices had climbed steadily during the period in-between harvests before they started to drop in recent weeks with the new production.

The only thing that could have sent ethanol prices higher in Brazil in recent days would have been rainy weather making it difficult to complete harvest work, but the past 10 days have been dry and there is little rain forecasted for in the near-term in the centre-south, so supplies should continue to arrive to markets, sources said.

Another round of sharp price declines look unlikely for next week, however, as prices may be already getting too close to production costs for some plants. Also, demand for hydrous ethanol will likely increase, as the biofuel is now much more price competitive with gasoline.

Demand for ethanol is expected to increase quickly because its price parity against gasoline has become advantageous, sources explained. At current levels, hydrous ethanol prices are close to 63% that of gasoline. Drivers in Brazil will normally increase ethanol consumption if ethanol prices are less than 70% those of gasoline.

Demand failed to increase faster, despite the lower distributor prices in recent weeks, because some fuel retailers at the pumps did not immediately translate their lower costs to consumers, sources said.

By Renzo Pipoli