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CS Brazil hydrous ethanol price breaks through Real 4,000/cu m ex-mill Ribeirão Preto

Highlights

Center-South hydrous ethanol above Real 4,000/cu m

Southeast hydrous ethanol price ratio to gasoline at 76.59%

Brazil Center-South hydrous ethanol broke through the Real 4,000/cu m ex-mill Ribeirão Preto price barrier on Oct. 5 because of high demand, expectations for a gasoline price increase, and overall tight stocks.

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S&P Global Platts assessed hydrous ethanol ex-mill Ribeirão Preto at Real 4,010/cu m on Oct. 5, a record high price, up Real 1,535/cu m, or 62%, for 2021.

Platts assessed domestic anhydrous ethanol at Real 3,995/cu m ex-mill Ribeirão Preto, a record-high price, up Real 1,460/cu m, or 57.6%, for 2021.

"Center-South ethanol prices increased on Oct. 5 because of distributors needing to restock for the upcoming Brazilian national holiday on Oct. 12 combined with strong expectations for an ex-refinery gasoline price increase in the near term," said a Sao Paulo-based trader.

Although Petrobras increased the price of diesel by around 9% on Sept. 29, no such adjustment was made to the price of ex-refinery gasoline and expectations are growing that a gasoline price increase will occur in the near term.

Market participants use Petrobras ex-refinery gasoline price increases or decreases as a discounting mechanism for ethanol prices because the gasoline price increase ultimately felt by consumers at the pump will put pressure on hydrous ethanol prices in the near term.

Consumers with flex-fuel vehicles can fill their tanks with gasoline, which has a blend of 27.5% anhydrous ethanol, or E100. Consumers generally fill up with E100 only when its price is 70% or less than the gasoline price, because of hydrous' lower energy content or if the absolute gasoline to E100 price premium increases well above the Real 1/l mark.

Sao Paulo remains in a stage of transition to a more relaxed phase of quarantine until Nov. 1, when all curfews, occupancy rates and restrictive times for all activities are expected to be nullified.

The anticipated increase in light-duty vehicle use resulting from the easing of lockdowns and the associated increase in ethanol demand will most likely cause distributors to make additional purchases of hydrous ethanol in the near term.

Southeastern consumers choosing gasoline

"Although the average Southeast gasoline price above Real 6/l is causing consumers to rethink their fuel choice at the pump, an absolute price differential less than around Real 1.5/l will cause many consumers to favor the economically fuel-efficient gasoline over E100," said a second Sao Paulo-based trader.

In the week ended Oct. 2, the current absolute price differential was Real 1.420/l between gasoline and hydrous ethanol (E100) at the majority of gas stations in Brazil's Center-South, according to data released Oct. 2 by the National Petroleum and Biofuel Agency.

The Southeast hydrous ethanol price ratio to gasoline was 76.59% -- around 9.4% above the 70% threshold that discourages demand from consumers for hydrous ethanol, or E100, because of its lower energy content.

The Southeast hydrous ethanol price averaged Real 4.646/liter against an average price for gasoline at Real 6.066/liter for the week ending Oct. 2.

The average absolute price differential in H2 September was Real 1.4335/l, a slight decrease from Real 1.4595/l in H1 September.

The volume of hydrous ethanol sold to the domestic market during H1 September was 654.9 million liters, down 22.6% on the year, data from Brazilian sugarcane industry group UNICA showed Sept. 27. The quantity of anhydrous ethanol sold to the domestic market during H1 September was 483.08 million liters, 29.9% higher on the year, reflecting the higher demand for gasoline.

Although Center-South ethanol prices are at historical highs, the pass-through of ethanol price increases at mills located in the Center-South along to the consumer at the pump has an average five to 15-day time lag, dependent on the speed and extent of the movement in ex-mill prices.