Brazilian anhydrous price at historic high amid bullish fundamentals

S&P Global Platts assessed on May 4 anhydrous ethanol ex-mill Ribeirao Preto at Real 3,510/cu m, its highest-ever assessment, a surge of 85% on year and up Real 150/cu m from the prior record on March 2.

Despite the official beginning of the 2021-22 Center-South crop on April 1, which could suggest a price drop, amid a scenario of increased supply and still capped fuel demand, in fact, anhydrous price is sky rocking supported by a combination of bullishness aspects.

The latest official numbers pointed to total ethanol production of 731 million liters in the first 15 days of the crushing season, a drop of 25.92%, while the anhydrous production was 104 million liters, a plunge of 41.47% on the year.

Anhydrous is used as a mandatory blend of 27% in Brazilian gasoline. Any higher gasoline demand will trigger the same movement for the biofuel.

So while in 2020 hydrous sales were down 14.6%, gasoline sales were down just 6.1%, cushioning the sales drop for anhydrous. The less-affected consumption for anhydrous, combined with CS production down 2.5% and Brazilian imports in 2020 down 31% on year, resulted in sharply lower anhydrous stocks on April 15.

Brazilian anhydrous ethanol inventories on April 15 were at 715 million liters, down 33.9% on the year, while hydrous was at 1.22 billion liters a drop of 17.4%.

Brazilian anhydrous average inventories in the prior five years for mid-April were at 778 million liters, suggesting the current CS crop will result in a further tightening of the biofuel in the market.

Adding to the lacking domestic stocks, the import arbitrage from Brazil's traditional supper, the US, remains fairly closed. According to a Platts calculation April 30, anhydrous ethanol could land in Suape, at Real 5,271/cu m, including the 20% import tariff, above the domestic market price.

Thus far in the first quarter, Brazil imported 178 million liters of anhydrous ethanol, down 70% from the same period of 2020, further explaining the smaller stocks at the start of the crop year.

Market participants reported that for May there will be nearly no additional inventories being recorded, as most of fuel distributors will be supplying their demand with spot trades and producers are expected to keep favoring sugar production over anhydrous production.