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CS Brazil hydrous ethanol prices rise on heavy rain, gasoline price hike


Heavy precipitation in SE Brazil

Petrobras raises ex-refinery gasoline price

Mills expected to maximize sugar production until end of harvest

  • Author
  • Phillip Herring
  • Editor
  • Jonathan Dart
  • Commodity
  • Agriculture Oil
  • Topic
  • Energy Transition Environment and Sustainability

Hydrous ethanol prices in Center-South Brazil increased Real 70/cu m, or around 3.4%, ex-mill Ribeirão Preto in the week to Aug. 20.

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S&P Global Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 2,150/cu m on Aug. 20.

Heavy rain in the CS region, state-controlled oil company Petrobras raising its ex-refinery gasoline price, and mills maximizing sugar production at ethanol's expense were the key factors behind ethanol prices rising.

Heavy rain in SE Brazil

A combination of heavy rain and low temperatures has moved slowly across Southeast Brazil. The weather front started to hamper milling operations on Aug. 15 and should continue to keep mills from maximizing production runs until the forecast change in the weather on Aug. 23.

Heavy rain will prevent harvesting machines from entering the fields and production will fall until the weather turns drier.

"Heavy rains and high winds are expected during the next few days from Parana into Sao Paulo and Mato Grosso do Sul in southern Brazil," a Sao Paulo-based trader said. "Ethanol production will be hampered by the extended bad weather, and ethanol prices will react accordingly."

Petrobras ex-refinery gasoline price increase

Petrobras announced an average gasoline price increase of 5.96% at refineries from Aug. 21. This 11th price increase since May 7 lifts the cumulative climb to nearly 97%, and reflects a gradual recovery in international energy markets as well as the real's weakness against the dollar.

Market participants use Petrobras ex-refinery gasoline price increases as a discounting mechanism for ethanol prices because the gasoline price increase will ultimately put upward pressure on hydrous ethanol prices in the near term. Consumer demand tilts toward relatively cheaper hydrous ethanol at the pump when gasoline prices increase.

The 97% price increase for ex-refinery gasoline almost completely nullifies the 12 price cuts, which culminated in a 50% drop in ex-refinery gasoline prices before May 7. The previous 50% drop in prices had put downward pressure on hydrous ethanol prices in the first few months of 2020 because of an increase in consumer demand for gasoline.

Petrobras uses a fuel pricing policy, which includes international energy and foreign exchange components, to ensure Brazilian domestic prices are in line with international markets.

The import parity price for imported gasoline is a moving target and any large movements on world energy markets or in the real/dollar exchange rate will be followed in the near term by an equivalent Petrobras price change for ex-refinery gasoline.

Mills seen maximizing sugar output till end of harvest

Cumulative sugar production in CS Brazil between the start of the 2020-21 season on April 1 and Aug. 1 totaled 19.73 million mt, a 47.64% surge on the year, data from trade association UNICA showed Aug. 11.

The sugar's share of the crush over April 1-Aug. 1 was 46.90% compared with 35.35% a year earlier.

Cumulative 2020-21 ethanol production through Aug. 1 totaled 14.52 billion liters or 6.6% less than a year earlier.

Mills choosing to maximize their sugar production is creating the possibility that ethanol stocks could fall below the current level of demand if quarantines continue to be eased. A loosening of quarantines in major cities will lead to increased light duty vehicle use and an associated increase in demand.

"We do not see any scenario where mills will alter the sugar mix in favor of ethanol for the remainder of the harvest," a Sao Paulo-based trader said. "With sugar production paying around a 250-300 point premium over ethanol production, mills will continue to maximize their sugar production for the foreseeable future."

Since April 1, mills have been taking advantage of the higher premium sugar production is paying over ethanol and maximizing their sugar production.

The ICE October New York No. 11 sugar futures contract settled Aug. 20 at a 3.10 cents/lb premium to hydrous ethanol in raw sugar equivalent.