Feature: Center-South Brazil ethanol imports hit highest level in over eight years

Santos — Center-South Brazil is the country's largest ethanol producing region and therefore it is unusual to see imported cargoes arriving at regional ports, however, the scenario totally changed in March when 210 million liters reached the region, according to the latest Secretariat of Foreign Trade data.

March's total was the highest seen since December 2011, when 250 million liters was imported, and an incredible increase of more than 10,000% year on year, as March 2019 saw just 1.98 million liters imported through Center-South ports.

Brazilian ethanol imports in March totaled 276 million liters, the highest in 23 months. The surge in imports was due to the opening of a new import quota period in March.

QUOTA MARKET

The import quota market changed in September 2019, when the Brazilian Foreign Trade Chamber (Camex) published a revised set of rules increasing the quota by 150 million liters to 750 million liters. However, the revisions restricted access to import licenses to just ethanol producers, who have a maximum quota of 2,500 liters each.

Instead of 750 million liters/year being divided equally into 187.5 million liters/quarter, volumes were restricted to 200 million tariff-free liters during the North-Northeast crushing season of September through February. The remaining 550 million liters can enter tariff free between March and August.

FUNDAMENTAL BALANCE CHANGES

Center-South hydrous ethanol consumption between April 1, 2019 and February 29 increased 10.9%, while production in the same period rose just 6.82%, trimming Center-South hydrous ethanol stocks by 4% year on year to 1.99 billion liters at the end of February. As a result of restricted offers, some producers considered hydrating part of their anhydrous ethanol to meet E100 biofuel demand.

However, anhydrous ethanol stocks were also tight at the end of February at 1.62 billion liters, a drop of 2.7% year on year, which encouraged importers to bring high volumes from US to meet their regulatory blend obligations.

In addition, as of March 31, Brazil requires ethanol producers and importers to have stocks equivalent to at least 8% of the volume of the anhydrous ethanol sold to distributors in the previous calendar year.

The regulation imposed by the National Agency of Petroleum, gas and biofuels (ANP) seeks to guarantee compliance with the minimum 27% anhydrous blend in gasoline C — the nationwide specification.

NORTH-NORTHEAST IMPORTS FALL

Despite the structural deficit in the NNE region, ethanol imports in March 2020 totaled 65 million liters, down 40% year on year.

Most of this change in the pattern for imports was the result of a decline in shipments from US that did not pay the 20% tariff and the higher regional anhydrous ethanol production. Anhydrous ethanol production in the region totaled 912 million liters between August 1, 2019 and February 29, or 21.4% more than in the same period of the prior year.

Even with higher anhydrous prices in the region, the arbitrage window for imports that would pay the 20% tax remained closed during the whole of 2019. Platts DAP Suape anhydrous ethanol assessment averaged 5.94% higher year on year in 2019, but it was still not enough to makes imports that had to pay the tax worthwhile.

The price collapse in US lowered the cost of imports in Brazil, but demand destruction across the entire country due to the coronavirus outbreak might not encourage any new deals in the next months.

Platts' last NNE anhydrous ethanol assessment April 3 saw a record low import price. Platts assessed US cargoes CIF Suape within the quota (without the 20% import tariff) at Real 1,972/cu m, which reflected a sharp depreciation by the Brazilian real against the US dollar and the plunge in the US ethanol cost.