Bigger cane crop, gov’t rules to boost Brazil ethanol

Brazil will ramp up ethanol output next season as the cane crop swells, sugar prices wilt under a global glut and government policy revives demand for the biofuel, the head of sugar cane industry association Unica told Reuters on Tuesday.

Ethanol looks set to stage a comeback in the 2013/14 season following an aggressive renewal of old, less productive fields and expanded cultivated area, which is expected to boost cane output about 10 percent, Antonio de Padua Rodrigues said.

A slump in cane output caused the government to reduce the mandatory blend of ethanol in gasoline to 20 percent from 25 percent in 2011, but it plans to restore it to 25 percent by June 1 or sooner, Rodrigues has been told by several officials.

Rodrigues’ estimate of 585 million tonnes of sugar cane production in 2013/14 would mark a record in terms of crushing if most or all of it is processed, but achieving that depends on having weather dry enough to enable a nimble pace of harvesting.

“We’ll have a more ethanol-focused season with opportunities for greater revenue than last year,” Rodrigues said, estimating a higher 53-54 percent of the crop would be used for ethanol, up from 51 percent last year. The rest would be used to make sugar.

“There is no room for Brazil to export more sugar than last year so the option is ethanol,” Rodrigues said.

The global sugar market is comfortably supplied. New York sugar futures for March delivery softened to their lowest prices in 2-1/2 years this week at around 18.30 cents per lb.

The world’s top sugar producer exported 24.3 million tonnes of the sweetener, both raw and refined, in 2012, according to trade ministry data.

The recovery in cane production, which slumped for two years after a record 556 million tonne crop in 2010, looks set to enable ethanol to recoup lost market share in the domestic fuel market after recent tighter supplies often left it uncompetitive with gasoline.

Brazil’s ethanol sector grew at breakneck speed starting a decade ago with the launch of flex-fuel cars that can run on pure ethanol, gasoline or a mixture of both. Mills were euphoric over the demand outlook and leveraged heavily to expand.

The sector fell on hard times with the 2008 financial crisis, leaving many mills struggling to service their heavy debts when the credit supply dried up. Greenfield mill projects were shelved and wealthier groups snapped up many family-run mills in financial distress.

GREENFIELDS ON HORIZON

Rodrigues said the recovery in cane output was largely down to a recovery in yields to about 75 tonnes of cane per hectare from about 70 tonnes with the renewal of cane plants. Yields should keep rising towards 78 or 79 tonnes in coming seasons.

“Most of the spare crushing capacity will be neutralized,” Rodrigues said, due to the combination of a larger harvest and the closure of about 40 mills in the last five years that culled about 32 million tonnes of milling capacity.

“By 2016 or 2017, we will be dependent on greenfield projects or on second generation if it is economically viable,” Rodrigues said. He said four long-planned first generation mills would open outside of the Sao Paulo state cane hub, in the states of Goias and Mato Grosso do Sul in the next year or two.

First generation ethanol mills ferment the sugars readily available in the juice squeezed from sugar cane while second generation breaks down the cellulosic fibers of cane and its foliage to extract even more energy. The technology already exists but the cost of the process has been a major impediment to its use.

Rodrigues said cane industry representatives from various government departments that he had met with spoke of June 1 as a target for raising anhydrous ethanol content in gasoline back to 25 percent, a rise that should prove a major boost for the sector.

“Today anhydrous ethanol is the most profitable product” for mills compared with making sugar or hydrous ethanol for flex-fuel cars, Rodrigues said. “The government is assured there is a sufficiently big enough harvest to enable them to take this decision.”

He said the government was mulling separate measures to make hydrous ethanol more competitive with gasoline by reducing certain taxes payable on it.

Incentives to bolster the ethanol sector are also of strategic importance for the government whose state-controlled oil company Petrobras is incurring heavy losses by importing fossil fuels to top up the country’s own supply but selling them at a regulated price below international rates.

A larger ethanol supply would enable Petrobras to reduce imports since drivers tend to switch to the biofuel when cheaper than gasoline. This would also help ease inflationary pressures which spiked in early 2013.

The government is also turning to the ethanol sector to address a separate energy problem – electricity. The sector supplies about 5 percent of the country’s power by burning the left over bagasse from cane. Bagasse, or biomass, power struggles to compete with other sources of energy at annual auctions however due to the high investments in equipment required to produce it.

Rodrigues said the government was studying changing the terms of power auctions to boost bagasse power’s competitiveness and also looking into ways to cut financing costs for mills investing in power generation equipment

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