New York—From the beginning of the Center-South crop April 1, 2020, to March 16, the volume-weighted average price of hydrous ethanol sales to the domestic market was at Real 2,320/cubic meter, up 3.94% from the same period of the crop 2019-21 and 15% higher than the VWAP of the prior five years.
Despite lower cumulative hydrous sales to the domestic market, which CS producers reported at 18.48 billion liters, down 14.75% year on year, producers could revert the pricing scenario seen at the beginning of the 2020-21 crop season, when the average price on April was at Real 1,689/cu m, 6% above the minimum average price of the last five years.Even in a scenario of capped demand because of the coronavirus outbreak in the country, hydrous ethanol price in the domestic market since August has been breaking monthly average highs.
S&P Global Platts average hydrous ethanol assessment ex-mill Ribeirão Preto on April was at Real 1,689/cu m, while in the first 16 days of March the average assessment was at Real 3,556/cu m a spike of 110% between the analyzed periods.
Hydrous ethanol price found support in a combination of market fundamentals and macro trends.
From the fundamental perspective, CS producers were financially encouraged to produce more sugar than ethanol, lowering hydrous ethanol output by 11.5% from the 2019-2020 crop.
Sugar in the export market, when converted to Real equivalent paid an average of Real 1,591/mt, between April 1, 2020 and March 16, 2021, a surge of 40% from the same period of the crop 2019-20.
In the macro scenario, the steep depreciation of the Brazilian Real against the US dollar was translated into higher export profitability to export both sugar and ethanol, and also supported the increase of gasoline cost in the country.
Brazilian flex-fuel drivers usually favor the hydrous ethanol fuel, whenever its price is up to 70% of the gasoline, therefore any higher fossil fuel price triggers a high in the biofuel price too.
Ethanol InventoriesBrazilian total ethanol inventories in mid-March were recorded at 3.13 billion liters, up 3% year on year. From the total volume, 1.39 billion liters were anhydrous, up 2.5% and 1.74 billion liters hydrous, up 3.4% on the year, according to data from the Ministry of Agriculture and Livestock released March 24.
While the total inventories were higher on year, market participants were concerned about the hydrous ethanol availability in April, as weather conditions suggest were suggesting a delay at the beginning of the harvest.
As a reflection of the supply availability, in the first-half March, the hydrous average price in the domestic market spiked 47% on the year, and sales reported by CS mills in the same period rose 12.7% on the year as a few distributors were increasing their long positions.
The scenario of supply shortage in the country has totally shifted as strict quarantines measured started to be imposed in mid-March.
March hydrous ethanol sales, which sources initially estimated at 1.6 billion liters, were revised to a maximum of 1.3 billion liters, relieving the stock pressure.
