Brazil North-Northeast anhydrous ethanol follows price collapse in Center-South

Prices in Brazil's North-Northeast anhydrous ethanol spot market plunged Real 450/cu m, 11.55%, in the week ended May 19, with Platts assessing anhydrous DAP Suape for 1-15 days forward at Real 3,445/cu m.

"North-Northeast ethanol prices collapsed on the week ended May 19 due to a significant ethanol price decrease in the Center-South triggered by a Petrobras gasoline price decrease," a Pernambuco-based trader said.

Petrobras instituted an average gasoline price decrease of 12.72% at refineries May 17, the third price change in 2023.

Market participants use Petrobras' ex-refinery gasoline price increases or decreases as a discounting mechanism for ethanol prices because the gasoline price increase ultimately experienced by consumers at the pump will put pressure on hydrous ethanol prices in the near term.

Consumers with flex-fuel vehicles can fill their tanks with gasoline, which has a blend of 27.5% anhydrous ethanol, or E100. Consumers generally fill up with E100 only when its price is 70% or less than the gasoline price, because of hydrous' lower energy content, or if the absolute gasoline-to-E100 price premium increases well above the Real 1/l mark.

In addition to the gasoline price decrease, Petrobras announced May 16 that their current fuel pricing policy will change from one that closely follows the price of imported fuels to a pricing policy focused on domestic production and logistics to better control rising inflation in Brazil.

"There are a lot of unknowns surrounding the Petrobras decision to abandon their fuel pricing policy which closely tracked international energy prices," said a Sao Paulo-based trader. "Many policy unknowns for Brazil's fuel market will exacerbate the volatility in ethanol markets in the near term."

Market participants are expecting ethanol prices in the North-Northeast region to ultimately track ethanol prices in the Center-South in the near term, less a freight differential of around Real 550/cu m from Goias state. The spread May 19 was Real 555/cu m between Platts-assessed ex-mill Ribeirão Preto and Platts-assessed DAP Suape anhydrous ethanol.

"Goias state is expected to start shipping competitively priced anhydrous ethanol to the North-Northeast region in the coming weeks, which will ultimately cause prices to decrease in the near term," a Sao Paulo-based trader said. "North-Northeast ethanol near term demand will most likely be supplied from within Brazil and not from imports from abroad."

Anhydrous ethanol imported from the US could land in Suape at Real 4,377/cu m, Real 932 above the Platts DAP Suape ethanol assessment, proving the closure of import arbitrage, according to S&P Global calculations.

Platts is part of S&P Global Commodity Insights.