Brazil Ethanol Prices More Competitive with Gasoline

Recent weakness in Brazilian ex-mill hydrous fuel ethanol prices finally led to more competitive retail prices in the key southeastern part of the country in the week ended October 25, National Petroleum Agency data showed Monday.

Southeast region hydrous fuel ethanol prices averaged 66.2% of the price of gasoline, down from 66.4% in the previous week and the lowest since the start of the 2014-15 sugarcane season in Center-South Brazil in April.

Hydrous fuel ethanol is used in Brazil as a stand-alone biofuel (E100) on flex-fuel vehicles. To be more competitive than gasoline in Brazil, E100 has to be below 70% of the price of gasoline.

Over the past month, domestic prices for hydrous fuel ethanol in Center-South Brazil decreased by 3% to Real 1,300/cu m ($515.46/cu m) ex-mill Ribeirao Preto amid increased selling pressure from the country's biggest producing groups.

Industry participants saw the heavier offers as a strategy from millers aiming for more demand at the pumps, expecting the lower ex-mill values to translate into more competitive levels against gasoline.

"The goal is to reach Real 1,690/cu m at the pumps in the state of Sao Paulo," one source said. "Once that level is reached the volume of ex-mill offers should decrease."

One of Brazil's largest groups, also active in the distributing chain has already stepped out of the market last week. According to market players the group is reckoned to be pressuring its own distributor's to pass the lower ex-mill prices to consumers.

This week, a trader noted a parity of 55% against gasoline prices while fueling in the city of Sao Paulo at Real 1,640/cu m. "But of course this is not the average yet," he added.

Hydrous ethanol sales by CS mills to domestic market are expected to grow in the second half of October after reaching 612 million liters in the first half of the month.

Kingsman, the agricultural analysis unit of Platts, estimates October's total sales to the domestic market by CS mills to hit 1.26 billion liters which would be the highest volume of sales since the start of the 2014/15 sugarcane season.