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Brazil Ethanol Prices to Surge as Shortfall Looms, Analyst Says

Fuel prices at the pump in Brazil may spike starting at the end of the year as sugar-cane mills struggle to meet demand for ethanol that’s blended with gasoline, according to Salim Morsy, an analyst at Bloomberg New Energy Finance.

Mills may have less than 1 billion liters (264 million gallons) of stockpiled anhydrous ethanol in December when producers begin to shut down for the inter-harvest season, from 2.3 billion liters at the start of the year, Morsy said in an interview today. Gasoline in Brazil uses a 25 percent blend of anhydrous ethanol.

Many vehicles in Brazil can run on either either pure, hydrous ethanol or the gasoline-anhydrous combination. More drivers have opted for the blend this year, raising concerns of a looming shortfall as the industry goes into the inter-harvest season.

“You want to go into the inter-harvest period with a healthy inventory,” Morsy said. “In the first half of the year, consumption of gasoline was high and this has to decrease so there’s less pressure on producers to provide anhydrous ethanol.”

Ethanol has about 70 percent of the energy of gasoline, and drivers of flex-fuel cars in Brazil typically buy gasoline when prices at the pump for pure ethanol are more than 70 percent of gas prices, Morsy said. That was the case in January, March, April and May, fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis said on its website, spurring demand for the gas-anhydrous blend.

Brazilian cane growers have the capacity to produce 37 billion liters of ethanol a year, and to process 11 billion liters of that into anhydrous ethanol to blend with gasoline, Morsy said.

A poor cane harvest in the 2010-2011 season drove up prices for anhydrous ethanol to a peak of 2.38 reais a liter in April of that year from 1.206 reais at the start of the year. Gasoline prices at the pump increased 11 percent over the same period, according to data compiled by Bloomberg.

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