BRAZIL: Cut in gasoline prices could hamper recovery of sugar prices

Published: 07/03/2017, 3:56:57 PM

Brazil's state-owned oil company Petrobras announced a 5.9% reduction in the average price of gasoline at refineries on Friday, what could have a negative impact on sugar prices, according to Archer Consulting firm, reports Sugaronline.

Petrobras has also announced it will increase the frequency of price adjustment, which could occur even daily, according to its reviewed policy for diesel and gasoline prices. 

Arnaldo Luiz Corrêa, director and consultant at Archer, said in an article published at the company's website, that some mills in Brazil are reportedly shifting their production mix to anhydrous ethanol given the poor performance of sugar prices.

He added that the price of the sugar contract for October 2017 closed at 13.81 cents per pound on Friday, a price below production costs in Brazil (13.88 cents), Thailand (15.49 cents) and Europe (17.50 cents).

Côrrea said that the additional demand for sugar in the coming years is not expected to be supplied, due to the lack of investment in expansion and renewal of cane fields.

"To give an idea of the size of the problem, if we simulate zero growth for the Brazilian economy until 2022 and maintain the same level of annual sales of new vehicles, we will still need 80 million tonnes of sugarcane just to meet the consumption of ethanol," he said.

The consultant added that if oil falls below US$40 a barrel and the Brazilian currency appreciates against the dollar, further reductions in the price of gasoline for the consumer "will put enormous pressure on sugar."

On the other hand, initiatives being considered by the federal government like increasing the CIDE tax on gasoline, raising tax for imported ethanol, and implementing RenovaBio plan to incentivize biofuel consumption, could help the sugarcane sector.