New Brazil Policies May Not Prevent Rising Ethanol Prices, Analyst Says
Brazil’s move to assume more authority over the country’s ethanol supply chain may not prevent a repeat of this month’s surge in prices for the renewable fuel, an analyst said.
The nation’s fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis is taking on more control over the production, import, export and storage of ethanol and other biofuels, according to a presidential decree signed into effect by President Dilma Rousseff yesterday. Brazil also reduced the minimum amount of ethanol that can be mixed with standard gasoline.
Ethanol prices reached record highs this month, the end of the annual inter-harvest season when sugar-cane mills are shut down and supplies wane. Prices may go even higher next year, according to Arnaldo Luiz Correa, an analyst at Archer Consulting in Sao Paulo, because demand is rising faster than the supply.
“Cane won’t grow faster now that ANP is supervising it,” Correa said in an interview today. The industry needs more investment in production capacity or “the problem’s only going to be worse next inter-harvest season,” which lasts from January to April.
Gasoline sold at the pump currently includes 25 percent ethanol, though the current policy permits blends as low as 20 percent. The decree reduces the lower limit to 18 percent.
Only a third of the ethanol produced in Brazil is blended with gasoline. The rest is used in the growing number of flex- fuel cars in Brazil that can run on pure ethanol, according to the Sao Paulo-based sugar-cane trade group Uniao da Industria de Cana-de-Acucar.
Record Prices
The price of anhydrous ethanol that’s mixed with gasoline rose to a record of 2.73 reais ($1.73) a liter on April 20, up 122 percent since the start of the year, according to Piracicaba, Brazil-based research institute Centro de Estudos Avancados em Economia Aplicada.
Those prices are coming down with the start of the new harvest season, making it less likely the government will lower anytime soon the 25 percent ethanol blend-rate currently in use, said Jacqueline Bierhals, a manager at the Sao Paulo-based research agency Informa Economics FNP.
By the end of this week, about 200 of the 335 mills in southern Brazil will be processing sugar cane, according to a Unica statement today.
To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
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