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Brazil's hydrous ethanol demand hits record high in July: ANP data

Sao Paulo — Demand for hydrous fuel ethanol in Brazil surged 40% year on year in July to 1.55 billion liters, the latest data from the National Petroleum Agency (ANP) showed.

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This is a record high for any July month and the highest volume of sales since October 2015 when demand had reached 1.75 billion liters, the data showed.

The Center-South region accounted for 92% of the total demand, or 1.43 billion liters, while the balance was consumed in the North-Northeast region.

Cumulative demand from January-July was up 40% on the year at 9.6 billion liters.

Hydrous fuel ethanol is used in flex-fuel vehicles and competes with gasoline at the pump, where it is competitively priced at 70% or less than the gasoline price. Gasoline has 30% more energy content than its competitor hydrous.

The rise in demand follows record production rates that translated into more competitive prices for consumers at the pumps. Currently, the hydrous ethanol price is at its lowest level compared to gasoline over eight years.

Hydrous ethanol's price reached 56.46% of gasoline cost in Southeast Brazil in the week ending August 25, according to latest data from ANP.

At the same time, gasoline C demand -- gasoline blended with anhydrous ethanol at 27% rate -- remained well below last year. Cumulative demand of gasoline was 13% lower from the last year at 22.7 billion liters.

As a result, the share of hydrous in otto cycle demand -- gasoline plus total ethanol, both hydrous and anhydrous -- in January-July was 23% compared to 16% a year earlier. Looking at the Central South region in particular, the share of hydrous in the consumption is now up to 27%, compared to 19% in the same period last year.

Overall total otto cycle demand in Brazil, however, was down 5% on the year on a cumulative basis at 29.5 billion liters. S&P Global Platts Analytics estimates the share of hydrous in otto cycle demand in Brazil could reach 25% in 2018, up from 18% in 2017, and therefore the consumption of the biofuel should still be higher on the year even if overall fuel sales are down.

The expectation is that hydrous consumption should remain strong in August, given the recent levels of competitiveness of hydrous at the pumps.

Adding to the bullish mood, state-oil company Petrobras have adjusted its ex-refinery gasoline prices to the highest level since July 2017 when it started adjusting prices almost on a daily prices.

Hydrous ex-mill Ribeirao Preto prices was assessed by Platts at Real 1,980/cu m ($479.57/cu m) Thursday, the highest since mid-June and a 14% surge from the beginning of the month.

--Beatriz Pupo, beatriz.pupo@spglobal.com

--Edited by Pankti Mehta, pankti.mehta1@spglobal.com