New York—Despite the end of the September-March crop season in Brazil's North-Northeast, when selling pressure from regional producers is usually reduced, the latest anhydrous trade heard in the DAP Suape market was at Real 3,150/cu m on March 2, a Real 580/cu m discount to the supply cost considering transfers from Ribeirao Preto, Sao Paulo state.
S&P Global Platts assessed anhydrous ethanol ex-mill Ribeirao Preto at Real 3,280/cu m on March 3, and according to market consensus the most competitive freight from RP to Suape was at Real 450/cu m, suggesting a DAP Suape landing cost at Real 3,730/cu m.Brazil's North-Northeast region is well known by its ethanol structural deficit, meaning that despite the regional production, it is necessary to bring ethanol from the Center-South or to imported cargoes to meet demand.
S&P Global Platts analytics estimates that in 2021 the North-Northeast will need to receive 1.62 billion liters of anhydrous ethanol from the Center-South and 787 million liters of imported cargo to meet the estimated demand.
In Goias state, a regular supplier to the North-Northeast, anhydrous was confirmed traded on March 2 at Real 3,600/cu m, and the road freight was said at Real 400/cu m to Suape, meaning a cost to supply spot demand in the region in March at Real 4,000/cu m.
Trading houses have been strongly affirming that no imported cargo from US will be discharged in March, as the current North-Northeast spot price is at Real 1,298/cu m discount over the import parity price.
"The Brazilian government should urgently withdraw [its] 20% import tariff as an alternative to lower the anhydrous supply cost in the country," said a trader from a major ethanol trading house.
According to Platts calculations, imported cargoes from US would land in Suape at Real 4,448/cu m; however, if the 20% import tariff was withdraw that replacement cost would drop to Real 3,719/cu m.
Distributors have been reporting a strategical long position in anhydrous ethanol to supply the forecast anhydrous demand in the Northeast in March; however, there is no certainty about the April supply.
"We bought all our estimated March demand for anhydrous in mid-January and to guarantee that there will be no washout we already collected the product from mills," said a source of a major distributor group.
That same strategy was broadly reported by other distributors, which positioned themselves in advance and estimating a contango market during the Center-South December-to-March inter-crop season.
The absence of spot demand has been reported by Pernambuco and Alagoas producers as the main reason why the regional price is lagging from the cost to supply from different locations.
In that tight anhydrous scenario a large sugar and ethanol producing group from CS Brazil is already planning to import 20,000 cu m of anhydrous ethanol to be discharged in Suape by early April.
"Even with the current closed import arbitrage we have a commitment to supply our contracts," said the trader, adding that other companies could start to consider this possibility to avoid an anhydrous shortage in early April.
Market participants estimates that CS producers will be delaying the beginning of the 2021-22 crop in 15 days due to unfavorable weather conditions to harvest the cane. The 15-day delays can trigger a price spike in all of Brazil in case the estimated demand be confirmed and in the absence of imported cargoes in the period.
