Brazil's Southeast hydrous ethanol price ratio to gasoline jumps to 5-year high: data

Brazil's Southeast hydrous ethanol price ratio to gasoline jumps to a 5-year high with gasoline being economically advantageous over hydrous ethanol for drivers in southeastern Brazil, weekly government data showed.

In the week ended May 15, the Southeast hydrous ethanol price ratio to gasoline was 75.08%, more than 5% above the 70% threshold that discourages consumers to fill their tanks with hydrous ethanol, or E100, according to data released May 15 by the National Petroleum and Biofuel Agency.

The last time the Southeast hydrous ethanol price ratio to gasoline witnessed similar levels was in February 2017.

"Although the current hydrous ethanol price ratio to gasoline is well above 70%, the current absolute price differential of gasoline and hydrous ethanol at the majority of gas stations in the Center-South remains above the infamous Real 1.00/liter mark," said a Sao Paulo-based trader. "An absolute price differential greater than Real 1.00/liter will still encourage consumers to fill their cars with hydrous ethanol, albeit with an economically disadvantageous energy content."

The current absolute price differential was Real 1.39/l between gasoline and hydrous ethanol (E100) at the majority of gas stations in the Center-South on May 15, well above the Real 1.00/liter mark that typically encourages consumers to fill their cars with hydrous.

Consumers with flex-fuel vehicles can fill their tanks with either gasoline, which has a blend of 27.5% anhydrous ethanol, or E100. Consumers generally fill their tanks with E100 only when its price is 70% or less than the gasoline price, because of hydrous' lower energy content or if the absolute gasoline to E100 price premium increases well above the Real 1.00/liter mark.

"At the current elevated prices of gasoline and hydrous, the Southeast hydrous ethanol price ratio to gasoline would need to rise above 80% to cause a major shift in consumer demand toward gasoline," a Rio de Janeiro-based broker said. "A greater than 80% hydrous ethanol price ratio to gasoline will start to push the absolute price differential at gas stations below the Real 1.00/liter mark."

Center-South hydrous ethanol remains near record price levels

S&P Global Platts assessed Center-South hydrous ethanol at Real 3,695/cu m on May 14, up 49.3% thus far in 2021.

Bullish supply reports, dry weather in the Center-South, high sugar production premium, and favorable economics over gasoline for the majority of 2021 have driven hydrous ethanol to record highs on fears over a short-term ethanol supply shortage.

The pass-through of hydrous ethanol price increases at mills located in the Center-South along to the consumer at the pump has an average five to 15-day time lag, dependent on the speed and extent of the movement in ex-mill prices.