Brazilian Center-South hydrous ethanol prices rally on stock replenishment

Hydrous ethanol prices in Brazil's key Center-South region continued Wednesday its third consecutive positive day, up Real 155/cu m since last Friday's S&P Global Platts assessed price of Real 1,595/cu m ex-mill Ribeirao Preto.

Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 1,750/cu m Wednesday, at the last heard traded price and a Real 50/cu m increase from Tuesday.

The National Union of Fuel and Lubricant Distribution Companies (Sindicom) was aggressively buying on Wednesday to replenish depleted ethanol stocks. Smaller distributors had entered the market on Monday to replenish stocks reversing a downward move in ethanol prices, which began on March 23. Although demand in the Center-South has fallen an estimated 50%-60%, Sindicom observed Monday's positive price move as a short-term bottom in ethanol prices and strategically purchased ethanol at deeply discounted prices for the year on Tuesday and Wednesday.

Hydrous ethanol prices ex-mill Ribeirao Preto are down over 29% or Real 770/cu m since January 1.

The prominent seller that drove down market prices with sequentially lower offers in the Center-South over the last several weeks reversed course on Tuesday and Wednesday offering Real 100/cu m higher each successive day ex-mill Ribeirao Preto. The prominent seller's offers of Real 1,800/cu m ex-mill Ribeirao Preto on Wednesday stood in stark contrast to their offers of Real 1,600/cu m ex-mill Ribeirao Preto last Friday.

Although Sindicom and smaller distributors have provided some short-term relief in a very bearish market environment caused by demand destruction due to the spread of the coronavirus, many market participants were expecting this price rally in the Center-South to be short-lived after distributors had finished replenishing their ethanol stocks.

International energy markets rallied on Wednesday in hopes that the OPEC+ meeting on Thursday will result in Saudi Arabia and Russia agreeing to major production cuts in their crude oil production. Any large production cuts in crude oil will be seen as a short-term bullish factor and international energy markets should continue to rally. The majority of market participants believe if Saudi Arabia and Russia fail to reach an agreement at Thursday's meeting than international energy markets could potentially succumb to new lows for the year.

NYMEX RBOB May futures jumped over 8% and ICE Brent Crude June futures increased almost 6% on the day.

Petrobras utilizes a fuel pricing policy, which include international energy and foreign exchange components to ensure Brazilian domestic prices are in line with international markets. If international energy markets rally due to an agreement for crude oil production cuts by OPEC+ members, Petrobras will most likely increase gasoline prices at refineries, which will put upward pressure on hydrous ethanol prices in the near-term because of a decrease in consumer demand for gasoline.