Demand for hydrous fuel ethanol in Brazil surged 15% year on year in October to 1.37 billion liters, which was also up 5% from September, data from the National Petroleum Agency (ANP) showed Friday. Demand was last higher when it reached 1.54 billion liters in December 2015, the data showed.
The Center-South region accounted for 94% of total demand, or 1.29 billion liters, while the balance was consumed in the North-Northeast region.
Hydrous fuel ethanol is used in flex-fuel vehicles and competes with gasoline at the pump, where it is competitive when its price is 70% or less than the gasoline price. Gasoline has 30% more energy content than its competitor hydrous.
The rise in demand comes as state oil company Petrobras continues to revise its ex-refinery fuel prices more frequently under a new pricing policy. Since the new policy began July 4, its gasoline price has posted a net rise of 21% as of November 30, giving hydrous prices more room to increase and still remain competitive at the pump.
Brazilian hydrous prices averaged 68.5% of gasoline prices in October, up from 67.8% in September, and down from 73.1% in October 2016.
Hydrous prices at the pump in September averaged Real 2.752/liter, while gasoline were Real 3.96/liter.
The uptick in October reflected a surge in ex-mill prices driven by increased demand from distributors. At the same time many producers were opting to store product, anticipating higher prices in the intercrop season, making for tighter supply availability that month.
The S&P Global Platts monthly average price assessment for hydrous ethanol ex-mill Ribeirao Preto in October was Real 1,913/cu m, up 6% from the previous month. In November, hydrous prices continued to increase, averaging Real 2,053/cu m, up 7%.
These rises are starting to feed through to the pump prices, which should start to curb some of the recently gained demand.
In the first 10 months of the year, total hydrous demand was 10.8 billion liters, down 13% on the year, ANP data showed. Hydrous demand has been lower most of 2017 due to tight supply since last year and consequently higher domestic prices, reducing demand at the pump.
Producers have directed more cane to produce sugar rather than hydrous ethanol, due to higher prices for sugar.
However, amid a recent rise in hydrous ex-mill prices, combined with lower sugar prices, producers have started to direct more of the sugarcane toward ethanol output.
This has translated into a recovery of production rates, with output now slightly higher than a year ago at a total of 23.6 billion liters.
However, hydrous production in the 2017-18 season, which started April 1 in the Center-South, is down 1% on the year at 13.5 billion liters as of November 16, data from industry association UNICA showed. That volume includes a small amount of ethanol from the feedstock corn.
Higher hydrous demand translates into lower gasoline demand, which is blended with 27% anhydrous ethanol under a national mandate. Anhydrous consumption in Brazil in October was 959 million liters, up 1.5% on the month, but 2% lower on the year, ANP data showed.
January through October, anhydrous demand rose 5% on the year to 9.9 billion liters, the data showed. The Center-South region accounted for 71% of total consumption, while the balance was consumed in the North-Northeast.
