Small volumes of fuel ethanol from Paraguay were recently exported to Brazil, sources said Thursday.
Brazilian trading houses purchased 5 million liters (1.32 million gallons) to be delivered in trucks to the states of Mato Grosso do Sul and Sao Paulo until the end of the month.
With the recent spike in domestic ethanol prices in Brazil due to tight stocks and strong demand, market participants looked at the neighboring country as viable option due to excess supply there. Sources in Paraguay told Platts that there are mills that will not produce this year as the country struggles with extremely low prices due to oversupply.
"The government does not know what to do with so much ethanol.... Right now, Paraguay has an overstock of all types of ethanol," said a local producer.
Paraguay has an ethanol mandate of 25% and is aiming to increase it to 27.5% in 2014.
Kingsman, a unit of Platts, currently estimates an oversupply of fuel ethanol in the country of 10 million liters for 2014 in addition to a carry over stocks of 30 million from 2013.
Official customs data shows that in January and February Paraguay already exported 1 million liters of anhydrous ethanol to Brazil. Sources mentioned the shipments were done as "test volumes" prior to the loadings booked for March arrival.
In the past, the country has exported anhydrous ethanol, but for other uses than fuel. In 2013, a total of 5.6 million liters of anhydrous were exported with the vast majority of it going to Belgium.
