Brazilian Center-South hydrous ethanol offers ease back, prices rise

Sao Paulo — Hydrous ethanol prices in the key Center-South region of Brazil have increased almost 22%, or Real 350/cu m ex-mill Ribeirao Preto, since the most recent low of Real 1,595/cu m ex-mill Ribeirao Preto on April 27.

S&P Global Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 1,945/cu m on Thursday.

Mills in the Center-South were offering less ethanol for sale on Thursday as they concentrated on maximizing their sugar production to take advantage of the recent high premium sugar production has been paying compared with ethanol production.

PODCAST: Brazil's sugar and ethanol markets planning a post-pandemic strategy

Brazilian mills (Flex Mills) have the unique ability to make minute adjustments in the ratio of their ethanol and sugar production based on which product is paying the highest market premium.

"The amount of sugar being sold by the mills in the Center-South was providing sufficient cash flow to cover costs and allowed mills to strategically hold more ethanol to be sold in the off season at higher prices," said a Sao Paulo-based broker.

The sugar mix for the first half of May stood at 47.23% as the premium paid for sugar production over ethanol production exceeded 3 cents/lb in late April. The 47.23% sugar mix is the highest sugar mix for the period recorded since H1 May 2006, according to trade association UNICA.

The recent rally in ethanol prices in the Center-South has led to the premium paid for sugar production to narrow, with the ICE July NY11 sugar futures contract settling Thursday at a 1.40 cents/lb premium to hydrous ethanol in raw sugar equivalent.

Another driving factor for mills to focus their efforts on sugar production rather than ethanol has been increased export demand for sugar because of the weakness of the Brazilian real against most world currencies thus far in 2020. Cumulative sugar exports so far during the 2020/2021 harvest have increased 48.88% year on year to 2.38 million mt.

"Mills will be able to strategically concentrate on maximizing their sugar production and holding ethanol off the market until H2 June or [the first half of] July because that is when storage capacity might become an issue and mills will be forced to sell, thus driving down prices," said a Sao Paulo-based trader. "Typically, capacity constraint issues for mills arise in late July and August, but the lack of demand caused by the spread of the coronavirus [pandemic] will move that date forward this year."

Since the beginning of the 2020/2021 harvest, cumulative sales of ethanol in the Center-South totaled 2.85 billion liters or a decrease of 26.28% from the same period last year, according to UNICA. The spread of the pandemic and social distancing measures in Brazil have led to less light duty vehicle use in major cities, resulting in lower demand for ethanol at the pump.

SAO PAULO STATE PROPOSES GRADUAL OPENING OF ECONOMY JUNE 1

The Sao Paulo government announced Wednesday the state of Sao Paulo would begin to lift quarantines starting on June 1. The plan will have five phases for the full opening of the Sao Paulo state economy and will be dynamic within each region of the state. If there are any setbacks with an increase of positive coronavirus tests then the plan will be to backtrack to an earlier phase until new cases decline again.

The news that quarantines will be possibly loosened in the near term in Sao Paulo state resulted in the National Union of Fuel and Lubricant Distribution Companies and smaller distributors actively buying ethanol on Wednesday and Thursday. A lifting of quarantines will result in greater light duty vehicle use and the associated demand for ethanol.

The Sao Paulo government's plan to reopen the economy might be put on hold before it starts though as Brazil's daily total of positive novel coronavirus tests and associated mortality rates continued to attain new highs as of Thursday.

PETROBRAS IMPOSES 43.5% MAY GASOLINE PRICE INCREASE

Petrobras instituted an average gasoline price increase of 4.8% at refineries Wednesday. This fourth price increase represents a cumulative 43.5% increase in ex-refinery gasoline prices during May.

Market participants expect there will be more Petrobras gasoline price increases in the near term and especially if international energy markets continue to rally.

Petrobras gasoline price increases at refineries support hydrous ethanol prices in the near term because of a expected decrease in consumer demand for more expensive gasoline.