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Brazil hydrous ethanol prices to record highs boosted by tight supply

Hydrous ethanol prices in Brazil's Center-South climbed Monday to their highest levels since S&P Global Platts started assessing, spurred by limited supply during the inter-crop period.

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S&P Global Platts assessed hydrous ethanol ex-mill in the producing region of Ribeirao Preto at Real 2,270/cu m, up from Real 2,250/cu m on Friday and the highest level since the assessment was launched in April 2014.

Brazil's Center-South region, the largest sugarcane producer in the world, is in the middle the inter-crop period, when the harvest is very limited and the vast majority of the ethanol traded was produced earlier and put in storage.

Available "ethanol stocks are in [only] a few producers hands leaving buyers with a little number of alternatives," said one broker, as many mills have already sold the majority of their annual production.

In Brazil, hydrous ethanol competes with gasoline for the preference of the drivers at the pump. The biofuel price must be below 70% of the gasoline to be seen as competitive.

Ethanol prices in Brazil gained a major boost during 2017 after gasoline prices rose, leading to the current record levels. In July, 2017 state-led oil company Petrobras started to revise its ex-refinery gasoline prices daily to follow international market fluctuations.

That led eventually to higher gasoline values, which in turn raised the celling for hydrous prices while keeping ethanol competitive.

A few weeks later, federal government increased taxes for all major fuels, but more heavily for gasoline, improving the competitive edge of ethanol.

Sources said the market was mostly quiet Monday, despite a few trades heard at the Real 2,270/cu m level, as fuel distributors weighed the effects of higher hydrous prices on demand.

"At current levels, hydrous price at pump is reaching a key psychological resistance level of Real 3/liter," said a second broker. "Everyone is wondering if we are reaching a roof for hydrous value."

Anhydrous domestic market was muted Monday, with no trades heard. Ex-mill Ribeirao Preto prices were assessed at Real 2,110/cu m, up Real 20 from Friday.

--Gustavo Bonato,
--Edited by Richard Rubin,