Brazilian ethanol prices show resilience compared to international crude

New York — Brazil's ethanol market has been resilient compared to international energy markets as tight supply and demand of hydrous ethanol in the Latin American country have caused prices for the commodity to see less than half of the destruction seen in crude prices.

Hydrous ethanol prices in Brazil's Center-South have decreased nearly 25% or 645 Real/cu m ex-mill Ribeirao Preto since the most recent high price of Real 2,590/cu m ex-mill Ribeirao Preto on February 27.

Compared to that, NYMEX RBOB May futures have declined over 65% and ICE Brent Crude May futures have slumped nearly 60% from their highs set earlier in the year on January 8.

CAUTION AHEAD

The next few months however, will prove if the impact from coronavirus causes enough demand destruction in Brazil for hydrous ethanol stocks to build and prices to continue falling.

Petrobras instituted a gasoline price decrease of 12% at refineries on Thursday, a steep cut that is likely to put downward pressure on hydrous ethanol prices in the near-term because of an increase in consumer demand for gasoline.

Moreover, an almost 30% depreciation in Brazil's real against the US dollar year to date has caused FOB prices to drop to lows.

FOB Santos anhydrous ethanol for loading 10-30 days forward was assessed on Thursday at $384/cu m, a decrease of $197/cu m for the year since January 1.

Meanwhile, Platts assessed Grade B, FOB Santos for 20-30 days forward loading at $366/cu m, a decrease of $202/cu m over the same period.

Additionally challenging growth conditions in Latin America's largest economy also pose a threat with GDP recorded at 1.1% in 2019 and expectations of negative growth in 2020 intensifying due to the collapse in international energy markets and the potential spread of the coronavirus in Brazil.