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Brazil Gas-Price Increase to Boost Ethanol Demand, Analyst Says

Brazil’s move to raise gasoline prices will boost annual demand for ethanol by as much as 4 billion liters (1.1 billion gallons), according to Salim Morsy, an analyst at Bloomberg New Energy Finance in Sao Paulo.

The state-controlled oil company Petroleo Brasileiro SA (PETR4) said yesterday it will raise gasoline prices at refineries by 6.6 percent. That will also let cane processors including Cosan Ltd. (CZZ) and Sao Martinho SA (SMTO3) increase prices for ethanol, which competes with the fossil fuel at the pump, Morsy said today in an e-mail.

Petrobras, as the company is known, has controlled gasoline prices as part of Brazil’s plan to contain inflation amid slow economic growth. That’s held down ethanol prices while production costs swelled, Jose Valdir de Campos, commercial manager at the Arapora, Brazil-based mill operator Usina Arapora Bioenergia SA, said today in a telephone interview.

“Production costs have risen by 22 percent over the last four years” as fertilizer and other farming inputs got more expensive, he said. “An ideal scenario would be if gas prices followed inflation.”

Brazilian gasoline prices have risen 9.4 percent over the past four years to 2.76 reais (1.39) a liter for the week ended Jan. 5, according to fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis.

At current prices, turning cane into anhydrous ethanol, which is blended with gasoline, is 9 percent more profitable than making sugar, and 15 percent more profitable than hydrous ethanol, which is used in flex-fuel cars, Campos said.

Arapora Bioenergia owns one mill in the state of Minas Gerais with annual cane-processing capacity of 1.8 million metric tons, half of which is used to make ethanol, he said.

Petrobras’s price rise will translate to a 4.4 percent increase in the pump-price of gasoline, Finance Minister Guido Mantega told reporters in Brasilia today. “It’s a modest increase. It’s a small correction that won’t trouble anyone.”

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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