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CS Brazil hydrous ethanol price at record high on gasoline price rise, classes resuming

Highlights

CS hydrous ethanol assessed at Real 2,695/cu m

Petrobras announced 7.63% ex-refinery gasoline price increase

Classes resuming and upcoming Carnival holiday lend price support

New York — Resumption of classes, an upcoming Carnival holiday and Petrobras gasoline price increases sent Brazil's hydrous ethanol to a record-high price Feb. 8.

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The Center-South hydrous ethanol price jumped Real 65/cu m, or 2.5% on Feb. 8 to a record high of Real 2,695/cu m, S&P Global Platts data showed.

Although there will be no official Carnival parade or block parties because of the pandemic, the majority of companies and banks in Brazil have not altered their usual Carnival holiday schedule for employees.

"Ethanol prices were expected to increase this week because of the resumption of classes and the upcoming Carnival holidays causing an increase in ethanol demand," said a Rio de Janeiro-based trader. "The announced increase in the price of gasoline by Petrobras greatly exacerbated the aforementioned expected ethanol price increase."

Petrobras announced an average gasoline price increase of 7.63% at refineries Feb. 8. The price increase will be instituted at refineries on Feb. 9.

Petrobras has increased the ex-refinery gasoline price by 22% over a three-week period in 2021, the first of three consecutive price increases occurred at refineries Jan. 19.

Market participants use Petrobras ex-refinery gasoline price increases as a discounting mechanism for ethanol prices because the gasoline price increase ultimately felt by consumers at the pump will put pressure on hydrous ethanol prices in the near term.

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. Any changes in the ex-refinery price of gasoline can alter this delicate price balance.

In the week ended Feb. 6, the Southeast hydrous ethanol price ratio to gasoline was 68.30%, almost 2% below the 70% threshold that encourages consumers to fill their tanks with hydrous ethanol, or E100, according to data released Feb. 6 by the National Petroleum and Biofuel Agency.

The hydrous ethanol ex-mill Ribeirao Preto price has rallied almost 70% from a low price recorded on April 27, 2020, during the initial shock of the pandemic. This substantial rally in price reflects the recovery in hydrous ethanol demand, which almost attained prepandemic levels in January.