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Brazilian hydrous ethanol price loses support after gasoline price drop

Highlights

Hydrous ethanol price falls 1.43% after trading at record highs

Gasoline price for SE consumers rises 7.12%; refinery price jumps 86%

Santos — Hydrous ethanol prices fell 1.43% July 30, assessed at Real 2,070 ex-mill Ribeirão Preto, amid a 4% late-morning drop in gasoline prices, as it failed to maintain support at record-high levels for the Center-South crop 2020-21.

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From an economic perspective, the hydrous price drop could not be explained, as there is no certainty about the gasoline price movement for consumers, where the impact is relevant.

S&P Global Platts assessed hydrous ethanol ex-mill Ribeirão Preto at Real 2,100/cu m July 29, the highest assessment for the crop 2020-21, which started April 1.

Since May 7, Petrobras increased gasoline ex-refinery prices at a cumulative 86%, which will be lowered to 82% after the July 30 announcement. At the same time, the average gasoline price at the Southeast pumps rose 7.12%, proving a wide price lag between ex-refinery and consumers.

Southeast region accounted for nearly 37% of the total gasoline Brazilian consumption from January to May 2020.

Hydrous ethanol producers were optimistic about the upward price movement, which started July 20, mostly triggered by the reinstatement of fuel consumption in Brazil and the higher gasoline prices being imposed since May.

Hydrous ethanol offers an economic advantage over gasoline, whenever the E100 price is below the 70% price threshold. According to the last data from the National Petroleum, Biofuel, and Gas Agency, the price parity in the SE was at 64.31% for the week ended July 25.

Fuel demand in July has been widely reported to be higher than the prior month, even though, according to the largest Brazilian distributors, the daily rate increase has been lowering when compared with the movement observed from May to June.

"We are reaching the new fuel sales ceiling after the coronavirus pandemic. People who had to leave their homes are already doing it," said a representative of a fuel distributor company.

That ceiling level perspective has been shared by multiple market participants, who estimate that fuel sales growth will depend on children going back to schools and people returning to offices, like before the coronavirus outbreak.

The large producing groups remained out of the spot market July 30 or even increased their hydrous ethanol offers to Real 2,120/cu m. Many building a carry strategy for hydrous ethanol, relying on an economic recovery in the last quarter of 2020 and Q1 2021, when CS will be in the inter-crop period.

On the other hand, distributors stepped out of the market, awaiting a price stabilization.