From the total volume imported nearly 100% or 77,391 cu m were diverted to supply the Brazilian North and Northeast region which has a historical structural ethanol deficit.The monthly import into NNE was 45% lower than in the same period of 2020 and most of this drop is explained by a closed import arbitrage from US since early-December the federal government reinstated the 20% ethanol import tariff.
While a smaller imported volume could just be mirroring a capped fuel demand in 2020, the picture was a bit different in the NNE region, where the anhydrous demand in 2020 lowered by just 3.7% - CS demand fall 7.2% - and triggered a regional price spike in the middle of the regional crop season, suggesting a buying pressure in the market.
That smaller regional supply mainly coming from US, was directly reflected in the S&P Global Platts assessment for anhydrous ethanol DAP Suape.
On Nov. 19 Platts assessed anhydrous DAP Suape at Real 3,015/cu m, a surge of 31.4% on year and the highest historical price assessed since October 2017 when the assessment was launched.
Because of the anhydrous price uptick, NNE plants kept emphasizing anhydrous production in December, when most of the large distributors were out of the spot market, waiting for imported volumes to arrive.
That mismatch between peak of production season, large buyers being supplied by imported anhydrous in December and January, capped the regional benchmark price, Platts anhydrous DAP Suape assessment to an average of Real 2,830/cu m in January, a drop of 6.8% from the highest assessed price in Nov. 19.
Supply scenario for Q1The most recent inventory data pointed that by Jan. 16 domestic anhydrous inventories in the NNE was at 234,150 cu m, a surge of 99,210 cu m or 73.5% on year, a number that could point to a surplus in the region if we were analyzing that single data.
To have a clear picture view of the NNE supply it is relevant to highlight that total imports in 2020 were down 29% from 2019 or 306,789 cu m and in January 2021 the volume was 63,088 cu m lower on year; therefore in the analyzed period roughly 370,000 cu m did not enter the region, while domestic stocks up to Jan.16 was just 99,210 cu m higher on year.
Some mills from Pernambuco started to hydrate part of its anhydrous inventories, being encouraged by the increased E100 demand and price spike.
"Anhydrous production was initially estimated at 130,000 cu m in Pernambuco state, however that number now has a downside, since hydrous is trading at Real 2,470/cu m Feb. 8," said Marcelo Guerra from the Pernambuco producer's association, Sindacucar.
NNE crop is expected to end by mid-March, and with the closed import arbitrage the region will need to relay on CS crop to supply the demand.
"We expect no imports with the closed arbitrage", said one of the largest ethanol importers, who added that the regional price will need to convert to anhydrous price in Center-South, plus the freight to Suape.
According to Platts calculation from Feb. 8 anhydrous ethanol imported from US, including the 20% import tariff could land in Suape at Real 3,939/cu m or Real 999.00/cu m ($185/cu m) higher than the regional price.
CS crop 2021-22 is expected to have a delay on its start, which is usually in April 1, and producers are expected to focus in the sugar production right on the beginning of the season, capping possibilities of high volumes being transferred to the NNE between April and May.
On the consumption front, since September 2020 the monthly anhydrous ethanol demand in the region is recording higher volumes from the prior year, proving that despite the increased number of people infected by the COVID-19 in the end of the year, the fuel demand was not affected.
In fourth-quarter 2020 anhydrous sales in the NNE added 878,353 cu m, up 6.70% or 55,095 cu m more on year.
S&P Global Platts Analytics estimates Brazilian light fuel demand in 2021 to increase 8% on the year. For NNE in particular, anhydrous ethanol consumption is expected to rise 4% on the year to 3.1 million cu m.
On reinstated fuel demand and lower supply, anhydrous ethanol price started to rebound in the first week of February and Platts assessed anhydrous DAP Suape at Real 2,930/cu m on Feb. 5, up Real 40/cu m on the week and 15.6% higher on year.
