Brazil reinstates ethanol import tariff making US product even less viable

Brazil's Foreign Trade Chamber (Camex) has reinstated the original 18% import tariff for ethanol by means of letting the current 0% import tariff expire as of Feb. 1.

The current 0% import tariff was put in place on Mar. 22, 2022 by former President Jair Bolsonaro to help fight rising inflation in Brazil.

The 18% import tax will protect Brazilian ethanol producers, especially those located in the North-Northeast regions of Brazil by reducing competitively priced ethanol imported from abroad, according to multiple sources. In addition, the increased import tax will have minimal effect on the end user in Brazil, the Ministry of Agriculture and Livestock said Feb. 1 in an official statement.

"The import arbitrage for ethanol to flow to Brazil was already closed, but with the reinstated 18% import tax and the upcoming reinstatement of PIS and COFINS taxes, the import arbitrage should remain closed for a prolonged period," said a Sao Paulo-based trader.

Anhydrous ethanol imported from the US could land in Suape at around Real 4,230/cu m including the 18% import tariff as of Feb. 1, Real 830 above the most recent Platts DAP Suape ethanol assessment, proving the import arbitrage was closed, according to S&P Global Commodity Insights calculations.

Brazil imported 312 million liters of ethanol in 2022 with the U.S. supplying 65% of total ethanol imported.

PIS, COFINS taxes to remain at Real 0/cu m

Brazil has extended the current exemption for federal taxes for fuel for the first 60 days of the new year, according to a provisional measure signed Jan. 1 by President Luiz Inacio Lula da Silva.

The Brazilian government lowered the so-called PIS and COFINS federal taxes on ethanol to Real 0/cu m from Real 131.9/cu m from June 24 until Dec. 31, 2022, to help reduce the negative effects of rising inflation in the country.