Brazilian hydrous ethanol trades at discount to production cost

Santos — Brazilian hydrous ethanol in the main producing hub of Ribeirao Preto, traded below the production cost on Wednesday at Real 1,316.70/cu m, excluding the Brazilian federal taxes PIS and Cofins of Real 130.90/cu m and the ICMS charged in Sao Paulo state of 12%.

It was the lowest tradable level since April 6, when hydrous was traded at Real 1,272.70/cu m, excluding taxes.

The Brazilian hydrous ethanol production cost is estimated at Real 1,377/cu m, which shows that Center-south mills are starting the harvest 2020-21, (April – March) selling the beginning of the production with a negative margin of roughly Real 61/cu m.

The industry association UNICA has been requesting an urgent support from the Ministry of Agriculture and Mines and Energy to guarantee that mills could survive during this consumption crisis. The two main requests have been the temporary wave of the Pis and Cofins taxes currently charged at Real 130.90/cu m for mills and Real 110,/cu m for distributors and a credit line which could consider the ethanol production as a guarantee, a warrant finance.

According to Evandro Gussi, UNICA president, producers would need to finance 25% of the estimated production, which means a credit of near Real 9 billion, or $1.7 billion, to stock one quarter if the ethanol production during the crop 2020-21.

The possible waive of the PIS and COFINS federal triggered a lower demand in the spot market, as buyers were afraid about buying with taxes, which might be waived in the next few days, and keep carrying stocks priced at a premium over the spot market.

Platts assessed hydrous ethanol converted in raw sugar equivalent at 7.99 cents/lb on Wednesday, proving that despite the recent plunge in the sugar future contract ICE NY11 which settled at 9.83 cents/lb, sugar exports was still paying better than hydrous ethanol in the domestic market.