More about Brazil's current and future ethanol situation-- note the later paragraphs in this report from Platts.com about ethanol imports from USA, which would bolster demand and prices for USA ethanol... The last sentence in this report is also a huge matter, given that, as i recall, it would mean about an extra 300 million gals. of ethanol needed for Brazil if the blend level is raised to 27.5%.
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Ethanol prices rise in Brazil after measures to boost gasoline taxes
Sao Paulo (Platts)--30Jan2015/236 pm EST/1936 GMT
Ethanol prices in Brazil have been on the rise following recent measures to increase gasoline taxes in the country.
Since the announcement on taxes made by the country's finance minister January 19 ex-mill hydrous fuel ethanol prices assessed by Platts have surged 7%, rising Real 100 to Real 1,600/cubic meter.
To increase or, in this case, reinstate the Cide tax, the government needs a notice 90 of days before the change takes effect. To collect the full tax during the waiting period, the government temporarily increased the PIS/Cofins tax.
The law calls for the PIS/Cofins tax to increase to 48 cents/liter on February 1. After the 90-day period, the Cide tax will be reinstated at 10 cents/liter while the PIS/Cofins tax will be reduced to 38 cents/liter.
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The law was published Thursday in the country's Official Diary. According to traders the response from consumers will start to be felt in the upcoming days, as the increase in gasoline taxes and recent gains in ex-mill hydrous prices have just started to reach the pumps.
A survey done this week by Folha de Sao Paulo, a Brazilian newspaper, shows the ethanol increase at the pumps has been passed on to consumers at a faster rate than gasoline's gains.
Its survey shows that ethanol was 3.5% higher than a week ago at fuel stations in Sao Paulo. Using data from 50 municipal stations, the average price of ethanol rose to Real 1,989/cu m. Gasoline was at Real 2,914/cu m, up 0.5% in the same period.
Hydrous ethanol parity at the pumps rose to 68%, compared with 66% last week.
Hydrous 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.
IMPACT OF HIGHER ETHANOL PRICES
Producers were heard Friday offering hydrous fuel ethanol at higher levels, up to Real 1,650/cu m on ex-mill Ribeirao Preto basis. Traders expected prices to reach those levels next week.
There could be resistance by the market once hydrous ethanol prices reach those levels, since the current high stocks available for use in the intercrop season should cap gains.
According to estimates by Kingsman, the agricultural analysis unit of Platts, hydrous stocks are estimated to end the season at around 1.25 billion liters, compared with 440 million liters last season.
As for the possible shift in the mix toward more ethanol production in the next sugarcane crop in the Center-South -- the largest producer and consumer region in the country -- due to the higher attractiveness of ethanol, Kingsman anticipates it should be limited, with forecasts for an ethanol mix of 56.8% (i.e. 43.2% sugar) for the next crop, about the same as the current crop.
Although the price floor has moved higher, on the forward curve sugar pays better than ethanol starting from April.
Another possible impact is on the flow of imports to enter Brazil next season [i.e., from USA]. With the higher ex-mill prices, traders see a potential for more imports, especially considering the recent slump in US ethanol prices, which is keeping the arbitrage open.
While major producers might not take part in these operations to maintain higher ex-mill prices, other players see a possibility for more product to come in.
Market participants said that in the most recent meeting with the ANP it was proposed that the volume that must be sold under long-term contracts between producers and distributors be raised to 100% from 90%.
On February 2, the government is due to meet and an announcement is expected regarding the implementation of a higher anhydrous ethanol blend into gasoline, from 25% to 27.5%, or possibly to 27%.
--Beatriz Pupo, beatriz.pupo@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com
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