BRAZIL: Ethanol prices plunge to six-month low ahead of new crush

Published: 03/07/2017, 11:40:54 AM

Brazil ethanol prices fell to the lowest level in six months in the latest week as mills increased sales in the local market to clear space in tanks for new-crop product, amid reduced demand for the biofuel, agricultural prices research center Cepea/Esalq said on Monday, according to Reuters.

Values for hydrous ethanol, the cane-based fuel used by Brazil's flex fuel fleet, fell to BRL1.56 per litre on average (before taxes) in the week ended on Friday, the lowest level since September.

"Some mills in Sao Paulo state are offering significant volumes in the market, looking to open space for the new season," Cepea/Esalq said in a weekly report.

Brazil's centre-south new cane crop officially opens in April, but many mills are expected to start crushing earlier this year since the current between-harvests period was relatively long and mature cane is already available.

Ethanol prices normally fall as harvest approaches, but the movement has been exacerbated this year partially due to current pricing policy by Brazilian oil giant Petrobras, which is closely following changes in the local currency and the international oil prices.

Brazil's currency is trading at its strongest level against the dollar since October, largely reflecting higher investor confidence in the country's economic recovery. Petrobras reduced gasoline prices for the second time this year on Feb. 24, citing the stronger real and stable oil prices.

The situation further deteriorates the cane-based fuel competitiveness against gasoline. Hydrous ethanol consumption fell 18% last year compared to 2015, as drivers switch to gasoline.

As a result, mills should again earmark as much cane as possible to sugar production at the expense of ethanol.