Low liquidity in the spot market and Petrobras gasoline price increases have sent Brazil's hydrous ethanol to a record-high price.
The Center-South hydrous ethanol price jumped Real 30/cu m, or 1.1% on the week, Jan. 29 to record high of Real 2,630/cu m, S&P Global Platts data showed.
"The National Union of Fuel and Lubricant Distribution Companies entered into long-term purchase agreements with the larger mills in early January to cover the bulk of their ethanol requirements through the end of March," said a Sao Paulo-based trader.
"Ethanol trading in the spot market will probably remain below typical trading volumes until the end of March, or the end of Brazil's intercrop period," the trader added.
Petrobras instituted an average gasoline price increase of 5.04% at refineries Jan. 27 and a previous increase of 7.93% at refineries Jan. 19.
"The two most recent Petrobras gasoline price increases have caused distributors to pause their purchases in the spot market and reassess ethanol prices in the short term," said a second Sao Paulo-based trader.
Market participants use Petrobras ex-refinery gasoline price increases as a discounting mechanism for ethanol prices because the gasoline price increase ultimately felt by consumers at the pump will put pressure on hydrous ethanol prices in the near term.
Consumers with flex-fuel vehicles can fill their tanks with either gasoline, which has a blend of 27.5% anhydrous ethanol, or E100. Consumers generally fill their tanks with E100 only when its price is 70% or less than the gasoline price, because of hydrous' lower energy content. Any changes in the ex-refinery price of gasoline can alter this delicate price balance.
The hydrous ethanol ex-mill Ribeirao Preto price has rallied almost 65% from a low price recorded on April 27, 2020, during the initial shock of the pandemic. This substantial rally in price reflects the recovery in ethanol demand, which has almost attained pre-pandemic levels in January.
Ethanol sales by CS mills during H1 January totaled 1.25 billion liters, or 2.5% less than a year earlier, with 1.21 billion liters going to the domestic market and 41.69 million liters for export, data from trade association UNICA showed Jan. 27. Of the total, hydrous ethanol sales accounted for 851.26 million liters, down 4.6% from the prior year, while anhydrous ethanol sales totaled 397.93 million liters, up 2.1%.
Although demand in January has been resilient, Sao Paulo suspended the resumption of classes and school activities while remaining in the second quarantine phase on Jan. 29, which is a more stringent quarantine level due to a high number of coronavirus cases. Sao Paulo state's reopening plan has five phases to mark the gradual decrease of coronavirus cases and reopening of Brazil's largest economic region.
The decrease in light-duty vehicle use and the associated demand for ethanol because of the stricter quarantine protocol in Sao Paulo will cause ethanol trading in the spot market to remain subdued.
