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Brazilian anhydrous ethanol hits historical high amid bullish fundamentals

Highlights

CS anhydrous ethanol price up 17.95% on year

NNE anhydrous ethanol price surges 23.46% on year

Ethanol imports from April to September down 65% on year

Santos — The Brazilian anhydrous ethanol market hit its highest traded value on Oct. 21 amid a scenario of fuel consumption increase, lower ethanol production and a lack of imports from the US.

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S&P Global Platts assessed anhydrous ethanol ex-mill Ribeirao Preto on Oct. 21 at Real 2,530/cu m ($451.07/cu m), up 13.71% on the month and 17.95% on the year. The assessment was the highest since Platts started to assess this market in April 2014.

The anhydrous price uptick in October -- when Center-South mills are still producing -- can be explained by the combination of a higher sugar mix and steep depreciation in the Brazilian real against the dollar, which has been closing the import arbitrage since April, sources said.

Historically, high anhydrous prices in CS Brazil have been seen in the first quarter of the calendar year, with the exception being 2019-20 (April-March).

On April 18, 2019, Platts assessed anhydrous ex-mill Ribeirao Preto at Real 2,485/cu m, the highest 2019-20 crop price, an outlier in the historical price trend, attributed by the market to weather conditions in CS Brazil, which were wetter than normal, delaying ethanol production.

The average Platts anhydrous ethanol assessment in October 2019 was at Real 2,134/cu m, while the average from Jan. 1, 2020 to March 18 was higher at Real 2,339/cu m. The effects of the coronavirus outbreak in the country dragged the anhydrous price nearly Real 100/cu m lower in the last 10 days of March.

Following this pricing curve trend, anhydrous price can potentially trade at an average of Real 2,772/cu m in the first quarter of 2021, Platts data showed.

Bullish fundamentals

The latest fuel sales report showed a cumulative Brazilian gasoline demand from January to August at 22.37 billion liters, a drop of 10.4% on the year. Considering Brazilian gasoline has 27% of anhydrous blended, cumulative anhydrous sales in the period were at 6.04 billion liters.

Since the beginning of the CS crop on April 1, producers have been shifting more cane toward sugar production.

Industry association UNICA said in its last crop report that from the total volume of cane crushed from April 1 to Sept. 30 of 499 million mt, 53.04% was diverted to ethanol production, down from 64.69% recorded in the same period of the prior crop.

In the same period, cumulative corn and cane anhydrous ethanol production combined added 7.48 billion liters, down 4.41% on the year.

By the end of September, Brazilian anhydrous inventories were showing a positive figure when compared to the prior year, at 3.51 billion liters, up 3.9% on the year. Most of the higher year-on-year stock can be attributed to the high volume imported through the CS Brazilian ports in the first quarter of the year, prior to the fuel consumption crisis.

According to Platts calculations done on Oct. 21, imported anhydrous ethanol from the US Gulf Cost to Suape -- Brazil's largest import hub -- would land at Real 3,108/cu m, free of tax, considering the import within the import quota of 187,500 cu m released on Aug. 31.

The calculated price was Real 398/cu m higher than the latest Platts anhydrous DAP Suape assessment published on Oct. 16.

Market participants reported that bi-monthly imports from Paraguay are expected to arrive in Northeast Brazil. However, the volumes were not disclosed and Platts could not find offers in the spot market, suggesting that most part of the volumes will likely not be offered in the spot market.

From April to September, Brazil imported 259 million liters, a plunge of 65% from the volume imported in the same period of 2019 amid a collapse in fuel demand in the country and the higher cost to import in dollars.