Cosan Climbing on Prospects of Green Silva Presidency

Cosan SA, co-owner of the world’s biggest ethanol producer, is surging on the prospect of a victory by Marina Silva in Brazil’s presidential election.

The company controlled by billionaire Rubens Ometto has climbed more than 26 percent, the most among 157 global peers, since Silva was unexpectedly thrown into the race, replacing Eduardo Campos who was killed in a plane crash Aug. 13.

A former environment minister, Silva vowed to boost ethanol consumption in her official governmental plan released Aug. 29. Polls show her leading over incumbent President Dilma Rousseff, whose efforts to contain inflation by blocking state-run Petroleo Brasileiro SA from raising gasoline prices are also depressing demand for the sugar cane-derived biofuel.

“There is a Marina effect,” said Sandra Peres, chief analyst at the brokerage Coinvalores in Sao Paulo. “She carries the renewable flag and the market expects incentives for the sector.”

Only 25 percent of Brazil’s flex-fuel cars were filled up with ethanol last year, down from 82 percent in 2009, as the fuel has become relatively more expensive than gasoline in most parts of Brazil, according to a December report from the sugar and ethanol consulting company Datagro. Ethanol provides less energy than gasoline, and drivers typically prefer it when the price is less than 70 percent that of gasoline.

Silva has said she would consider tax incentives to aid ethanol suppliers, and has made reviving the industry a key part of her campaign. Ethanol production “cannot be sacrificed in its ability to compete in the fuel market because of a policy of controlling gasoline prices that undervalue” the renewable fuel, according to her governmental plan. Her press office didn’t respond to requests for comments.

Gasoline Prices

Ethanol prices at the pump in Brazil are tied to the price of gasoline. Silva has said that she may lift the current cap on gasoline prices, a move that would make ethanol more attractive for drivers of flex-fuel cars that can run on either type of fuel.

“With a different policy, ethanol prices could rise in Brazil,” Artur Losnak, an equity analyst at brokerage firm Fator, said by telephone. That will drive up profits for producers, and is unlikely under the current government. “Nobody believes that Dilma will change the current gasoline policy.”

Plane Crash

Silva had been Campos’s vice presidential running mate and became the Brazilian Socialist Party’s presidential candidate Aug. 16 after the plane crash in the southeastern city of Santos that killed Campos, four members of his staff and two pilots. The nine-seat plane went down after an aborted landing because of bad weather.

Campos had been polling third in the presidential race, trailing Rousseff and Senator Aecio Neves of the Brazilian Social Democracy Party.

Her entry upended the race. A Datafolha poll of 2,874 people published Aug. 29 showed Silva would have 50 percent of voter support in an October second-round vote against Rousseff, who would have 40 percent. In the 2010 presidential election, Silva came in third, with 19.6 percent of the votes.

Since the crash, Sao Paulo-based Cosan SA Industria & Comercio has climbed the most among 157 large fuel distributors worldwide, according to data compiled by Bloomberg. Cosan and Royal Dutch Shell Plc jointly own Raizen Energia SA, the biggest ethanol producer. Raizen accounted for 14 percent of the Brazilian company’s sales last year. A spokesman for Cosan declined to comment on the share movement.

Ethanol Producers

All four of Brazil’s publicly traded producers are rising on the so-called Marina effect. Cosan’s surge trails only Biosev SA, which has climbed 34 percent, buoyed by both the political situation and its own efforts to restructure its debt. Sao Martinho SA has gained 17 percent and Tereos Internacional SA is up 14 percent, beating the 10 percent gain for Brazil’s Ibovespa index. Cosan may also be getting a lift from plans to spin off its logistics operations Oct. 1.

Predictable pricing for ethanol is essential for the industry’s rebound, according to Rodrigo Aguiar, chief executive officer of Tonon Bioenergia SA, a closely held ethanol producer.

“If prices are not at the right place, you are stimulating the use of gasoline rather than ethanol,” Aguiar said in an interview. That’s “contrary to policies to fight pollution and to what we expect from Silva, an environmentalist.”

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