Hydrous ethanol prices rally 28.8% off lows, imported gasoline attains price parity

New York — Hydrous ethanol prices in Brazil's key Center-South region have increased almost 29%, or Real 460/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 2,055/cu m on June 9.

Petrobras instituted an average gasoline price increase of 10% at refineries on the same day. This fifth price increase since May 7 represents a cumulative 58% average increase in gasoline prices ex-refinery since that date and reflects a recovery in international energy markets and solidifies a strong reversal of the previous 12 price cuts instituted in the market this year.

"With the most recent ex-refinery gasoline price increases and almost 20% increase in the Brazilian real against the US dollar, Petrobras has attained price parity to the price of imported gasoline," said a Sao Paulo-based trader. "Petrobras might increase gasoline prices ex-refinery by an additional 3-5% in the near term to provide a positive 50 real/cu m cushion for the importation of gasoline."

Hydrous ethanol prices in the Center-South have experienced a fraction of the much larger positive price move experienced with international energy markets almost doubling during the previous four weeks.

NYMEX RBOB July futures have increased more than 110% and ICE Brent Crude August futures have increased more than 83% since their lows set on April 22.

Any further increase to ex-refinery gasoline prices will put upward pressure on hydrous ethanol prices in the near term as consumer demand will increase for relatively cheaper hydrous ethanol at the pump.

The National Union of Fuel and Lubricant Distribution Companies (Sindicom) and smaller distributors were active in the markets on June 9 because coronavirus quarantines have started to loosen in most major cities, including Rio de Janeiro.

A lifting of quarantines will result in greater light duty vehicle use and an associated demand for ethanol.

Although the loosening of quarantines in major cities have begun, market participants believe quarantines will be immediately reversed if Brazil's daily total of positive coronavirus tests and associated mortality rates continue to attain new highs.

MILLS STRATEGICALLY STORING ETHANOL

Mills in the Center-South have been strategically offering less ethanol for sale 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. The proceeds from the sale of sugar has covered the short-term cost for most mills and given the mills freedom to store ethanol for the next 30 days, in hopes for higher prices, to strategically begin selling.

An additional factor which caused mills to hold back the sale of ethanol was the expected Petrobras ex-refinery gasoline price increase, which occurred on June 9.

"With the Petrobras ex-refinery 10% gasoline price increase completed on June 9, we expect more mills in the Center-South to come forward and sell their ethanol to take advantage of the anticipated higher gasoline price for consumers and associated increased demand for cheaper ethanol," said a Rio de Janeiro based trader.

Looking ahead, market participants were expecting capacity constraint issues for mills to start arising in late June and early July because of ongoing lack of demand caused by the negative economic impact due to the ongoing spread of the coronavirus in Brazil.

BRAZILIAN FOB ETHANOL PRICES CONTINUED PRICE RALLY

Brazil FOB ethanol prices have rallied off of lows for the year on the back of a stronger Brazilian real to US dollar exchange rate.

FOB Santos anhydrous ethanol for loading 10-30 days forward was assessed on June 9 at $402/cu m, an increase of more than 37% from the low price set on May 13.

Platts assessed Grade B, FOB Santos for 20-30 days forward loading at $401/cu m, an increase of more than 42% from the low price set on May 13.

The Brazilian real to US dollar exchange rate has rallied almost 17% to Real 4.92/$1 from the recent low of Real 5.92/$1 recorded on May 13.

The appreciation in the Brazilian real against the US dollar year to date has added to strength in domestic FOB prices as exports are priced in US dollars.