Trade Resources Industry Views Higher Brazilian Ethanol Price Fails to Halt Another Demand Record in October

Higher Brazilian Ethanol Price Fails to Halt Another Demand Record in October

Brazilian hydrous fuel ethanol demand in October rose 45% year on year to 1.75 billion liters, the fourth monthly consumption record in a row, according to data released by the National Petroleum Agency, or ANP. October's total was also 7% higher than consumption in September.

With higher ethanol prices in October there were market expectations that domestic hydrous fuel ethanol demand could drop and consumption of anhydrous ethanol, which is mixed with gasoline, could increase, according to Kingsman, the agricultural analysis unit of Platts.

Platts assessed domestic hydrous ethanol prices in Center-South Brazil at Real 1,950/cu m Monday. The Platts hydrous ethanol assessment on October 30 was Real 1,870/cu m and Real 1,650/cu m on September 30.

When Brazilian sugarcane growers association UNICA released a report showing strong domestic hydrous ethanol sales -- the data included fuel and industrial ethanol sales -- the market was unsure whether sales were for consumption in October or whether distributors were stocking up November too. But the late Monday ANP figures proved domestic demand for both products remained pretty strong.

Both hydrous and anhydrous ethanol prices have surged recently for several reasons -- a 6% increase in gasoline prices in late September, fewer offers on the spot market with mills storing ethanol for the inter-crop period that starts in December, and heavy rain disrupting the sugarcane harvest.

Hydrous ethanol is used as a standalone biofuel (E100) in flex-fuel vehicles. To be competitive with gasoline in Brazil, the E100 price has to be at most, 70% of the gasoline price.

In October, hydrous ethanol prices at the pump in the six largest states for consumption averaged 67% of the gasoline price, compared with 64% in September and 68% in the same period last year, ANP data show. The six states represent about 85% of domestic demand and are in the key Center-South sugarcane region.

Drivers have benefited as domestic prices for hydrous fuel ethanol in the Center-South were under pressure for most of the sugarcane season, which began in April as millers boosted hydrous ethanol production due to liquidity in the domestic market and low sugar prices.

This parity to gasoline has averaged 72% in November. Kingsman estimates that hydrous consumption in November could drop roughly 10% month on month.

In December, however, consumption is usually high due to the end-of-year holidays, and consumption is expected to drop slightly compared with October or match it.

Hydrous prices at the pump are almost Real 1/liter below gasoline levels, meaning consumers are still likely to prefer ethanol. But Kingsman expects that if ethanol rises to 75% of parity, consumers may start switching back to gasoline.

Anhydrous consumption in October reached nearly 938 million liters, up 5% from previous month, but down 6% year on year. Gasoline C is blended with 27% anhydrous ethanol. Gasoline C consumption in October totaled 3.47 billion liters, up 5% from September, but down 13% year on year.

Usually, when hydrous demand increases from one month to the next, gasoline C demand remains stable, or drops, according to Kingsman analysis.

January through October hydrous ethanol consumption in Brazil increased 42% year on year to 14.9 billion liters, while anhydrous demand totaled 9 billion liters, down 2% year on year, the ANP data show.

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Topics: Metallurgy