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Brazil ethanol prices fall as food row boils


Reuters
Photo by Reuters


Brazilian ethanol prices have been falling in the last three weeks as cane producers begin another record harvest and the global biofuels market grows slower than anticipated as the food-versus-fuel argument intensifies.

As the food-versus-fuel debate heats up around the world, Brazil's industry says its ethanol could help ease the upward pressure on food prices if countries cut trade barriers and adopted the cane-based biofuel, which does not compete with food.

But despite Brazilian efforts, exports have been falling short of industry expectations. They totaled around 3.1 billion litres in 2007/08, down from 3.4 billion litres the year before.

"An external ethanol market could correct the current price imbalance (in the domestic market). But since this external biofuel market doesn't exist yet, we are not able to manage the surplus," said Antonio de Padua Rodrigues, technical director at the Sugar Cane Industry Union (Unica).

Flex-fuel cars, which can run either with gasoline or ethanol, can absorb the surplus - but at prices that, according to the industry, are not sustainable.

During most of last year, prices of anhydrous ethanol, which accounts for 25% of the gasoline sold in Brazil, were 14.5% below the previous year. Hydrous ethanol prices, used in flex-fuel cars, were 15.9% lower on average.

The fuel has dropped around 7% since mid-March as producers started harvesting the new crop, which is expected to reach a record, reported Reuters.

Analysts and producers estimate that, like last season, the surging output will likely surpass demand this year, even though consumption will continue to set records.

"Supplies more than compensated the (rise in) demand. And this will likely repeat (in 2008/09)," said Julio Maria Borges, director at Job Economia, a consulting firm.

Low international sugar prices, due to oversupply, are contributing to the increase in ethanol output as mills divert more cane to produce the biofuel.

"It was a year of big supplies, despite (high) demand. Expectations of rising exports did not materialise. This ethanol remained here," said Mirian Bacchi, cane researcher at Cepea/Esalq, a local research institute.

Brazil's center-south 2008/09 cane crop, which began harvesting in March, is expected to be around 12% larger than the previous season. Even more cane is forecast to be diverted to ethanol production as sugar prices remain unattractive and 30 new ethanol plants will come on-line.

But a rise in exports to the US later this year could support prices, said Rodrigo Martini, a consultant at risk management firm FCStone in Sao Paulo.

He said ethanol prices are increasing in the US market and could soak up excess Brazilian supply.

"As of June, when the holiday season starts in the US, it's possible that Brazil could have a window of opportunity," Martini said.

Unica also expects ethanol exports from Brazil to rise slightly this season, helped by growing prices in the US market.

Martini added that despite the recent rise in US prices, Brazilian exports are not viable now, especially considering the recent appreciation of Brazil's currency, the real, against the dollar.

Wednesday, 16 April, 2008, 01:17 GMT  | last updated: Wednesday, 16 April, 2008, 01:18 GMT

A worker cuts sugar cane for sugar and ethanol production: near the city of Dourados in Mato Grosso do Sul state, southern Brazil
 

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