Ethanol demand in Brazil rose 24 percent in June from a year ago, according to fuel distributors, signaling a shift among motorists that will help shrink the global sugar glut and reduce Brazil’s dependence on gasoline imports.
As a global glut in sugar pushes prices near three-year lows, Brazil’s cane industry association Unica is likely to revise down its official forecast for sugar output from 35.5 million tonnes seen in April to no more than last year’s 34.1 million tonnes, Unica’s technical director, Antonio Padua Rodrigues, said on Tuesday.
Analysts expect growing demand for ethanol on the local market to absorb the bigger cane crop and draw down the global sugar surplus.
Supply of ethanol, which competes directly with gasoline, has picked up sufficiently on the back of the record sugar cane harvest. This in turn has weakened the biofuel’s price and made it a better buy for cost-conscious drivers.
The news will be welcomed by state-run oil company Petrobras which has suffered serious losses from importing gasoline at international prices and selling it at a loss domestically due to government price controls.
Rodrigues said that Unica’s ethanol forecast for 2013-2014 (April-March) would likely be revised up in the center-south to 26 billion liters from 25.4 billion seen in April.
Fuel distributor’s association Sindicom, which accounts for 60 percent of distributors, said ethanol consumption rose 24 percent to 556.6 million liters (4.67 million barrels) in June from a year ago and rose 10 percent from May.
Sindicom said its associated distributors sold 3.14 billion liters of hydrous ethanol in the first six months of 2013, which is up 16 percent from the same period of 2012.
Sindicom’s numbers precede the National Petroleum Agency numbers which have not yet been released for June and may not exactly match the broader national numbers on ethanol sales. But they are seen as an early sign of the trend to come.
“Ethanol has begun to regain market share against gasoline,” Sindicom President Alisio Mendes Vaz told Reuters, attributing the improved competitiveness of the fuel to the bumper cane crop and the elimination of the PIS/Cofins taxes on the fuel in May.
With sugar futures prices holding at just above 16 cents/lb, Brazilian cane mills are diverting more production toward the biofuel.
In June, mills allocated 58 percent of the cane harvest to ethanol and 42 percent to sugar, while last year they allocated the crop at 52 percent and 48 percent, respectively, Unica said.
Rodrigues estimates hydrous ethanol sales are up 12 percent from the start of the cane season in April through June compared with last year and will end the season in March 2014 up 20 percent from a year ago.
“It’s not something that happens overnight,” Rodrigues said about the shift of local drivers to ethanol when its price drops below 70 percent of gasoline, a reference point for local motorists that signals ethanol is a better buy.
Ethanol only gets about 70 percent the mileage that the same tank of gasoline gets in most Brazilian flex-fuel cars.
He added that he expects the local flex-fuel market to absorb most of expansion in the center-south cane crop that will grow to a record 589 million tonnes from 533 million last year.
Rodrigues said 50 percent of 350 filling stations surveyed in Sao Paulo priced ethanol at 64 to 66 percent that of gasoline and 22 percent priced it at or below 63 percent.
Meteorologists expect July to remain dry after a wet June slowed the production of sugar and ethanol in the main cane region. Output of both sugar and ethanol are expected to pick up in the coming bimonthly crushing reports by Unica.
Although ethanol exports were up more than 100 percent from January through June in the Trade Ministry’s latest numbers, Rodrigues said he expected exports to fall by 20 percent from last year’s 3.3 billion liters.
“The window for ethanol exports to the U.S. will close abruptly toward the end of the year as the massive corn crop is harvested and turned into ethanol there,” Rodrigues said.