Brazilian ethanol prices remained competitive with gasoline at the pump in Sao Paulo on Monday, but this could change by week's end as recently seen strong ethanol prices from producers to distributors trickle down to consumers, sources said.
"It takes two to four weeks for drivers to see the firm price being transferred to the pump," an ethanol trader said. "That is why ethanol is still competitive with gasoline right now in Sao Paulo".
"I believe that by the end of this week price will go up at the pump and demand will twist back to gasoline," he said.
Hydrous ethanol prices at Sao Paulo's filling stations stood at Reais 1.81/liter ($3.93/gal) for the week ending March 3, while the average price for gasoline was Reais 2.63 ($5.71/gal), according to data published by Brazil's National Petroleum Agency.
Meanwhile, hydrous ethanol was offered by producers to distributors at Reais $1.40/liters ($3.02/gal) after taxes, despite expectations that market activity would weaken -- and prices drop -- in the aftermath of Carnival, which officially concluded February 29, an ethanol broker said.
"With the competitiveness at the pump, demand was back and that is why producers kept the firm price," the ethanol trader said.
In Brazil, drivers of flex-fuel vehicles can choose to use hydrous ethanol or gasoline to fuel their cars. Used as an alternative to gasoline, hydrous ethanol becomes competitive once it is at least 30% cheaper than gasoline, according to market sources and government data.
The figures indicate that hydrous ethanol in Sao Paulo state, which accounts for 60% of the Brazil's fuel demand, was 32% cheaper than gasoline at the pump in the past week.
"With the competitiveness at the pump, demand was back and that is why producers kept the firm price," the ethanol trader said.
Also in the market on Monday, anhydrous ethanol, used for mandatory blending into gasoline, was offered by producers at Reais 1.30/liter ($2.83/gal) exclusive of taxes.
