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Brazil's hydrous ethanol demand in Oct hits highest level since Dec 2015: ANP

Sao Paulo — Demand for hydrous fuel ethanol in Brazil surged 15% year on year inOctober to 1.37 billion liters, which was also up 5% from September, data fromthe National Petroleum Agency (ANP) showed Friday. Demand was last higher when it reached 1.54 billion liters in December2015, the data showed.

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The Center-South region accounted for 94% of total demand, or 1.29billion liters, while the balance was consumed in the North-Northeast region.

Hydrous fuel ethanol is used in flex-fuel vehicles and competes withgasoline at the pump, where it is competitive when its price is 70% or lessthan the gasoline price. Gasoline has 30% more energy content than itscompetitor hydrous.

The rise in demand comes as state oil company Petrobras continues torevise its ex-refinery fuel prices more frequently under a new pricing policy.Since the new policy began July 4, its gasoline price has posted a net rise of21% as of November 30, giving hydrous prices more room to increase and stillremain competitive at the pump.

Brazilian hydrous prices averaged 68.5% of gasoline prices in October, upfrom 67.8% in September, and down from 73.1% in October 2016.

Hydrous prices at the pump in September averaged Real 2.752/liter, whilegasoline were Real 3.96/liter.

The uptick in October reflected a surge in ex-mill prices driven byincreased demand from distributors. At the same time many producers wereopting to store product, anticipating higher prices in the intercrop season,making for tighter supply availability that month.

The S&P Global Platts monthly average price assessment for hydrousethanol ex-mill Ribeirao Preto in October was Real 1,913/cu m, up 6% from theprevious month. In November, hydrous prices continued to increase, averagingReal 2,053/cu m, up 7%.

These rises are starting to feed through to the pump prices, which shouldstart to curb some of the recently gained demand.

In the first 10 months of the year, total hydrous demand was 10.8 billionliters, down 13% on the year, ANP data showed. Hydrous demand has been lowermost of 2017 due to tight supply since last year and consequently higherdomestic prices, reducing demand at the pump.

Producers have directed more cane to produce sugar rather than hydrousethanol, due to higher prices for sugar.

However, amid a recent rise in hydrous ex-mill prices, combined withlower sugar prices, producers have started to direct more of the sugarcanetoward ethanol output.

This has translated into a recovery of production rates, with output nowslightly higher than a year ago at a total of 23.6 billion liters.

However, hydrous production in the 2017-18 season, which started April 1in the Center-South, is down 1% on the year at 13.5 billion liters as ofNovember 16, data from industry association UNICA showed. That volume includesa small amount of ethanol from the feedstock corn.

Higher hydrous demand translates into lower gasoline demand, which isblended with 27% anhydrous ethanol under a national mandate. Anhydrousconsumption in Brazil in October was 959 million liters, up 1.5% on the month,but 2% lower on the year, ANP data showed.

January through October, anhydrous demand rose 5% on the year to 9.9billion liters, the data showed. The Center-South region accounted for 71% oftotal consumption, while the balance was consumed in the North-Northeast.

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

--Edited by Lisa Miller, lisa.miller@spglobal.com