Santos — Brazilian anhydrous ethanol stocks totaled 2.95 billion liters at the end of August, up 0.9% or 158 million liters on the year, according to the latest data from the Ministry of Agriculture and Livestock.
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Although the slight year-on-year increase in stocks should suggest a balanced market in what has been a year of drastic demand destruction, estimates are pointing to a different scenario.
Given a S&P Global Platts Analytics estimate of 2020 Brazilian otto cyle demand of 50.16 billion liters, down 7% on the year, Brazil will need to import at least 442 million liters of anhydrous ethanol between Sept. 1 and March 31, 2021 from the US.
Even in a pandemic year, where social isolation measures hampered fuel consumption across the country, gasoline demand was less affected than hydrous ethanol fuel. In the first seven months of 2020, Brazilian gasoline sales totaled at 19.43 billion liters, down 10.5% on year, while hydrous ethanol demand decreased 17% in the same period.
Anhydrous ethanol is used as a 27% mandatory blend in the Brazilian gasoline C.
While in Brazil's Center-South there is an ethanol surplus, the North Northeast of the country is well known for its structural deficit, which is historically filled by imports from US and transfers from the CS.
In 2019, the NNE imported 1.02 billion liters of anhydrous, however, the steep depreciation of the Brazilian real against the US dollar closed the import arbitrage. In the first eight months of 2020, NNE imports totaled 258 million liters.
The plummet in imports was due to the arbitrage for imports from US being closed since April.
S&P Global Platts assessed anhydrous ethanol DAP Suape at Real 2,540/cu m on Sept. 11, for a closed arbitrage of Real 270/cu m for imports from US.
The second supply option for the NNE is transfers from the CS, which has been the most common supplier since April.
After transfers from the CS to the NNE between Sept. 1 and March 31, 2021 totaling 652 million liters, NNE inventories on March 31, 2021 are expected to total 87 million liters, 16% lower than a year earlier, according to Platts Analytics. In addition, CS anhydrous ethanol inventories on March 31, 2021 are expected to total 450 million liters, the lowest volume at this point in a year since 2011.