Center-South Brazil hydrous ethanol sales expected to remain steady in Q1

Sao Paulo — Hydrous ethanol consumption is expected to remain steady in the main Brazilian fuel consuming states despite the highest prices ever recorded.

The hydrous ethanol price has had a price advantage over gasoline in Southeast Brazil since April 16, 2018 when it last surpassed 70% of the gasoline price and reached 70.32%.

In response to the competitive prices at the SE pumps over more than 20 consecutive months, Brazilian fuel consumers have shifted to E100, and sales reported by mills have broken monthly records in 2019.

In the whole of calendar 2019 mills in Center-South Brazil have reported record high sales each month and despite the price rise in December that trend did not change. Industry association UNICA on Tuesday said hydrous ethanol sales reported by mills in December grew 6.9% year on year to 1.96 billion liters. In December, S&P Global Platts hydrous ethanol ex-mill Ribeirao Preto assessment averaged Real 2,435/cu m or 18.90% higher than in December 2018, proving that higher prices did not curb consumption.

Most of this new consumption trend can be attributed to higher gasoline prices in Brazil that allowed the price of hydrous ethanol to increase but still remain competitive at the pump. The hydrous ethanol parity to gasoline in December in the SE region reached peaked at 67.86% in the week ended December 30, according to the National Petroleum and Biofuel Agency, ANP.

According to UNICA hydrous ethanol sales between the start of the season on April 1 and December 30 were 18.17 billion liters, up 12.3% year on year.

Ethanol producers have been investing in production capacity on the basis of higher fuel consumption and prices, also encouraged by the Brazilian decarbonization program, Renovabio. April 1-December 30 cane ethanol production in CS Brazil totaled 32 billion liters, a rise of 6.54% year on year, while corn ethanol more than doubled to 1.05 billion liters from 518 million. Of this, hydrous ethanol output was 22.26 billion liters, up 6% on the year.

For the first quarter of 2020 market sources estimates that more than 1.6 billion liters of ethanol will need to be produced, to support Brazil's steady hydrous ethanol consumption.

"We could see more mills pre-empting the harvest to produce hydrous in March if prices make sense and the weather permits." senior biofuel analyst at Platts Analytics Beatriz Pupo said.

Platts Analytics estimates hydrous carry-over stocks by March 31 of around 780 million liters, equivalent to only 11-12 days of domestic consumption.

-- Nicolle Monteiro de Castro, nicolle.castro@spglobal.com

-- Edited by Jonathan Dart, newsdesk@spglobal.com