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Hydrous fuel ethanol prices in CS Brazil hit all-time high

Montreal — Hydrous fuel ethanol prices in Center-South Brazil surged on Tuesday to be assessed by Platts at Real 1,950/cu m on ex-mill Ribeirao Preto, up 7% from a week ago and a new all-time high.

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Hydrous fuel ethanol is used in Brazil as a standalone biofuel (E100) on flex-fuel vehicles.

A combination of factors are supporting the recent price hike. The first is the recent increase of ex-refinery gasoline prices announced in late September.

In addition, there are fewer offers in the spot market, with more producers out to build stocks for the inter-crop season, which is soon arriving. Furthermore, recent rains in the region are hampering the pace of the harvest.

Rains forecast for the whole week translated into higher offers on Tuesday, sources said.

Since late September, hydrous fuel ex-mill Ribeirao prices have soared 26% and are now 47% higher compared to a year ago.

Although the parity at the pump has recently eroded due the increase of ex-mill prices and the higher prices at the pumps, distributors are having a hard time forming stocks and are surprised by the ongoing strength of demand.

To be more competitive than gasoline in Brazil, E100 has to be below 70% of the price of gasoline.

Consumption of ethanol during the 2015-16 Center-South sugarcane season has been strongly shifting toward hydrous.

Brazilian hydrous ethanol consumption posted a third consecutive monthly record in September of 1.63 billion liters, an increase of 4% compared with August and 48% higher than demand in September 2014, data from the country's National Petroleum Agency, or ANP, showed last week.

Adding to the bullish sentiment, local media reported the government has dropped the idea of reinstating the CPMF tax and is now once again looking at increasing the Cide -- the so-called fuel tax -- to Real 0.50/liter, which could once again give more room for hydrous prices to increase while favoring the price parity at the pumps.

However, there are worries that there may not be a sufficient supply of hydrous to be able to meet the ongoing strong consumption rate. Estimates from Platts-Kingsman point to roughly 900 million liters of hydrous stocks by April 1, 2016, compared with 1.13 billion liters recorded on April 1, 2015. This would be enough for less than one month of demand, which would be considered tight supplies.

--Beatriz Pupo,
--Alessandra Rosete,
--Edited by Derek Sands,