Brazil Ethanol Needs to Fall Below 60% of Fuel to Boost Demand

Ethanol prices in Brazil, the world’s second-biggest producer, need to fall below 60 percent of gasoline costs for motorists to switch to the biofuel, boosting domestic demand, according to consultants Datagro Ltd.

Brazil’s flex-fuel cars can be filled up with either pure ethanol or a blend of the biofuel and gasoline. While price parity is reached when ethanol is at 67 percent to 69.4 percent the price of the gasoline blend, as the biofuel burns faster, consumers will need even lower prices to switch back to using ethanol, Plinio Nastari, president of the Barueri, Sao Paulo-based Datagro said in an interview in London today.

“Consumers migrate from one product to the other when the difference is significant,” Nastari said at the International Sugar Organization conference. “When prices fall below 60 percent, you have a significant move towards ethanol.”

Brazil’s center south, the main growing region, will crush a record 591.5 million metric tons of cane in the 2013-14 season started in April, Datagro estimates. Sugar output will be 34.2 million tons, little changed from a year earlier, and ethanol production will rise to 25.6 billion liters (6.8 billion gallons) from 21.4 billion liters in 2012-13. Millers in Latin America’s biggest economy make the sweetener and the biofuel from raw material sugar cane.

About 24 percent of Brazil’s flex-fuel cars are currently being powered by ethanol, down from 82 percent in 2009, Nastari said. That means there’s still potential for consumption of the biofuel to rise by 1 billion liters a month to 1.9 billion liters if the share of vehicles using the biofuel climbed back to 2009 levels, according to Datagro estimates. Ethanol prices were 54 percent to 56 percent that of gasoline in 2009, he said.

Ethanol

“There’s a very big variation potential in ethanol consumption depending on consumer preference for either hydrous ethanol or gasoline,” Nastari said, referring to the pure ethanol used in flex-fuel cars. “A variation of 10 percent in the number of consumers choosing to fill up with one or the other could create 6 million tons more or less sugar. The single most important factor in the sugar market today is the Brazilian motorists’ fuel preference.”

Sugar futures fell 11 percent in New York this year as global supplies outpaced demand by more than 10 million tons in the season ended Sept. 30, says the London-based ISO. Excess supplies will fall to 2.6 million tons in 2013-14 and the world may face shortages the following season as stockpiles are being drawn-down and investment slowed in the sector in Brazil, the world’s biggest producer of the sweetener, Nastari said.

Financial difficulties mean another 20 mills will close in Brazil in the next two to three years, according to Nastari. More than 50 facilities closed since 2007. While mills will stop operating, cane will be crushed by factories with lower costs, he said.

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