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Feature: Center-South Brazil ethanol imports hit highest level in over eight years

Center-South Brazilian hydrous ethanol prices hit a record high

Highlights

Demand continues to ramp up

Above-average Feb rain points to shortage, more upside

Sao Paulo — Hydrous ethanol prices in Brazil's key Center-South region hit a record high on Friday, with bids heard at Real 2,550/cu m, offers heard at Real 2,600/cu m and trades heard at Real 2,580/cu m in the late afternoon.

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S&P Global Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 2,580/cu m Friday, at the last price heard traded and an increase of Real 40/cu m day on day.

Friday's settlement price breached the previous record high of Real 2,550/cu m, set April 18, when gasoline stations in the Center-South faced a massive fuel shortage.

An industry report released January 27 painted a picture of low ethanol stocks and unrelenting demand, a scenario which market participants expect to continue until the next harvest begins at the end of March.

Hydrous ethanol production of almost 900 million liters during the first two weeks of January projected total hydrous ethanol production of 1.8 billion liters in January. Although production remains strong, consumption increased 12% this harvest season, reaching about 18.5 billion liters, compared with 16.5 billion in the same period a year earlier.

There was also a drop of more than 9% in inventories compared with the 2018/19 harvest, setting up a very bullish demand and supply scenario until the next harvest begins in late March.

Long-term weather forecasts are pointing to above-average precipitation in February, which could ultimately delay the start of the harvest and result in a more acute shortage of ethanol. Any fears over delays in the start of the harvest will add a premium for ethanol prices.

Although a Petrobras gasoline price decrease of 3.0% was instituted on Friday, the decrease was considered marginal and not enough to offset the unrelenting demand for ethanol in the Center-South. The last adjustment made by Petrobras in the price of gasoline was January 24, when the price of gasoline at refineries was trimmed by 1.5%.

"Strong ethanol consumption, children returning to school and replenishment of low stocks by distributors were the primary factors affecting ethanol prices on Friday," said a Ribeirao Preto-based trader.

A complement to the overall bullish scenario in hydrous ethanol prices is that the supply of anhydrous ethanol for blending with gasoline is guaranteed by resolution 67. According to ANP resolution 67/2011, Brazilian producers, importers or trading houses who sold anhydrous ethanol in the prior year need to prove they have a minimum stock level equal to 25% of the total volume sold in the prior year. This additional demand for anhydrous ethanol to meet the resolution is supporting prices in the short term.