Brazilian Center-South mills' anhydrous ethanol sales in the domestic market was at 1.48 billion liters in the first two months of the crop 2021-22, a surge of 35% on the year, while the production reached 1.85 billion liters, up 11.27% on the year, data released by the industry association UNICA June 10 showed.
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Brazilian ethanol has been breaking price records since the end of January despite a still-capped fuel demand due to the ongoing coronavirus pandemic.
According to S&P Global Platts' calculation, the volume-weighted average price of hydrous ethanol sold by CS mills so far in the crop 2021-22 was at Real 3,335/cu m, a spike of 92% from the same period last year.
Meanwhile, the average anhydrous ethanol premium over hydrous reached an average of 14.4% in the spot market, from the 14.3% average of the entire crop 2020-21, which explains part of the strong production shift from hydrous to anhydrous ethanol.
Platts considered hydrous and anhydrous free of taxes to calculate the spot premium.
Part of the higher anhydrous ethanol premium in the first two months of the crop could be explained by an increased hydrous ethanol price for consumers and mostly by an increased demand coming from the North-Northeast, or NNE, region, which has been totally dependent of CS ethanol transfers to meet its demand.
The NNE region has a historical structural ethanol deficit, which was used to be partially supplied by US imports, however, the combination of the steep depreciation of the Brazilian real against the US dollar, price spike in the US corn ethanol and reinstatement of the 20% import tariff in December 2020, were translated in a closed import arbitrage.
NNE cumulative ethanol imports from January to April 2021 were at 94 million liters, a plunge of 59% on the year.
According to Platts calculations from June 4, anhydrous ethanol imported from the US, including the 20% import tariff, could land in Suape at Real 4,902/cu m, or Real 942/ cu m higher than Platts' DAP Suape assessment.
Suape is Brazil's main entrance for ethanol imports.
In case of a reinstatement of an import quota, anhydrous ethanol from US could land in Suape at Real 4,098/cu m, above the Platts NNE Brazil ethanol assessment and still a closed import arbitrage despite the valuation of the real against the US dollar on the week. On June 4, Platts assessed Real at 5,0474/$1, up from 5,2185/$1 May 28.
It was already known that CS producers would maximize sugar production for the 2021-22 crop, but a new factor has been the drop in the season's volume of cane to be crushed because of the region's severe dry weather.
Cumulative cane crushed until June 1 was at 129 million mt, down 10.88% on the year, converting in a drop of 6.66% in the total ethanol production to 5.8 billion liters and cumulative sugar at 7.15 million mt, down 11% on the year.
From the total ethanol produced, hydrous was capped at 13.18% to 3.9 billion liters, while anhydrous increased 11.27% to 1.8 billion liters.
Despite the historical high prices for both anhydrous and hydrous ethanol, sugar price in the export market is still paying a premium over hydrous ethanol in the domestic market.
Platts assessed hydrous ethanol converted in raw sugar equivalent at an average of 15.26 cents/lb so far in the crop 2021-22, while the ICE NY11 sugar future contract recorded an average of 16.69 cents/lb in the same period.
Adding to the point of a lower production, the most recent inventory data released by the Ministry of Agriculture and Livestock, or MAPA, pointed to a Brazilian anhydrous ethanol stock by mid-May at 907 million liters, a plunge of 37% on the year, while hydrous was at 2.1 billion liters, down 10% year on year.