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Brazil Center-South hydrous ethanol in parabolic price phase

Highlights

Center-South hydrous ethanol price jumps to record high of Real 3,350/cu m

Possible ethanol supply shortage

Weather problems, delayed start to 2021-22 harvest

New York — S&P Global Platts assessed Center-South Brazil hydrous ethanol at a record Real 3,350/cu m on Feb. 25, up Real 200, or 6%, on the week. The Center-South hydrous ethanol price is up 35% for 2021.

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A bullish industry report, dry weather in the Center-South and favorable economics over gasoline have driven hydrous ethanol to a record high on fears over an ethanol supply shortage.

"Ethanol prices have dramatically increased in a short period of time because of the possible scenario of an ethanol supply shortage in early April," said a Sao Paulo-based trader. "The market's tremendous ongoing upward price movement will attain a price which effectively stymies demand for ethanol until the start of 2021-22 harvest in early April."

Bullish UNICA Report

"The H1 February UNICA report was very bullish for ethanol prices on Feb. 24 and prices reacted accordingly," a Rio de Janeiro-based broker said. "Hydrous and anhydrous ethanol sales showed fortnight year-on-year increases for the 2020-2021 crop season, proving resilient demand has exceeded pre-pandemic levels."

Ethanol sales by CS mills during H1 February totaled 1.29 billion liters or 5.32% more than a year earlier, with 1.26 billion liters going to the domestic market and 23.14 million liters for export, data from trade association UNICA showed Feb. 24. Of the total, hydrous ethanol sales accounted for 839.72 million liters, up 3.85% from the prior year, while anhydrous ethanol sales totaled 425.13 million liters, up 8.2%.

Ethanol sales by CS mills in 2020-21 from April 1 to Feb. 16 totaled 27.21 billion liters, 8.64% lower year on year, with 24.83 billion liters going to the domestic market and 2.38 billion liters for export. Although ethanol sales to the domestic market showed a 11.71% decline year on year, ethanol sales to the international market proved a 43% increase on the year. The fall in domestic demand was driven by the initial impact of the coronavirus pandemic on the Brazilian economy.

Ethanol production by CS mills in 2020-21 from April 1 to Feb. 16 was 29.68 billion liters, down 8.54% from 32.45 billion liters a year earlier, UNICA said.

Hydrous ethanol production accounted for 19.97 billion liters of the total, while anhydrous ethanol output was 9.71 billion liters.

Weather Problems, delayed start to 2021-22 harvest

"The soil water deficit and unevenly distributed rain in the Center-South from September to January will result in a two-week delay to the start of the 2021-22 harvest," said a second Sao Paulo-based trader. "The cane has simply not reached optimal maturation for an April 1 start date for the next harvest."

A two-week delay to the 2021-22 harvest will put additional pressure on an already tight ethanol supply in the Center-South and prices should continue to climb in the near term.

Ongoing dry weather in the Center-South has increased expectations for a reduced sugarcane yield for the 2021-22 crop season and associated drop in ethanol production.

Center-South February rainfall is expected to be 20% below average, 143 mm instead of 183 mm for the month.

Expectations are for above-average rainfall in March, which will be helpful for cane development during the middle to later stages of the 2021-22 harvest. Although above average rainfall in March is beneficial for later stage cane development, it could potentially further delay the start of the 2021-22 harvest.

Center-South March rainfall is expected to be 18% above average, at 158 mm instead of 124 mm for the month.

Southeastern hydrous ethanol economically advantageous over gasoline

Hydrous ethanol was economically advantageous over gasoline for drivers in southeastern Brazil, weekly data showed.

In the week ended Feb. 20, the Southeast hydrous ethanol price ratio to gasoline was 68.05%, almost 2% below the 70% threshold that encourages consumers to fill their tanks with hydrous ethanol, or E100, according to data released Feb. 20 by the National Petroleum and Biofuel Agency.

"In addition to the current hydrous ethanol price ratio to gasoline below 70%, the current absolute price differential of gasoline and hydrous ethanol at the majority of gas stations in the Center-South is well above the infamous Real 1.00/liter mark, which will drive consumers to fill their cars with hydrous," said a third Sao Paulo-based trader.

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.

"Ex-refinery prices and FOB mill prices typically have a three-week lag period before fully showing at the pumps," said a fourth Sao Paulo-based trader. "The most recent Petrobras 9.98% gasoline price increase on Feb. 19 should keep the Southeast hydrous ethanol price ratio to gasoline below 70% in the near term."

Petrobras has increased the ex-refinery gasoline price by 34% over a four-week period in 2021, the first of four consecutive price increases occurred at refineries Jan. 19.