Increased Demand and Sugar Export Push Ethanol Price Over R$ 5 at the Pumps; What Was a Salvation for Petrobras Gasoline Adjustments Becomes a Villain for Brazilians’ Wallets

Sugarcane Harvest Ends in November, and Ethanol Prices Are Expected to Rise Even More in the First Quarter of 2022, Leaving Consumers ‘With Their Hands and Feet Tied’

The ethanol that often saved consumers as a substitute for gasoline during high price times is now also becoming a major villain for the wallets of Brazilians, increasingly losing competition to fossil fuel. Currently it is no longer advantageous to refuel with the biofuel, even with the high prices and constant adjustments in gasoline practiced by Petrobras.

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• Like Gasoline, Ethanol Prices Close September with a New Rise, Reaching Nearly R$ 6 and Consumers Have Nowhere to Turn
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• Direct Sale of Ethanol from Mills Is Advocated by Lawmakers Who Promise to Stimulate Competition and Curb the Increase in Gasoline Prices at Fuel Stations

Despite Brazilian ethanol having its raw material in abundance in the country, and the high dollar and oil barrel prices not influencing the price of the biofuel, as they do with gasoline, the biofuel has also seen price increases, leaving consumers “with their hands and feet tied.”

Ethanol Price Increase Influences Gasoline Prices

The increase in alcohol contributes to an even larger increase in gasoline prices, which has 27% ethanol in its composition. According to Vaníria Ferrari, an economics professor at Una, several scenarios have led to the increase in ethanol prices, such as climate issues that affected the sugarcane harvest and millers’ preference for sugar exports—driven by the high dollar price and the strong demand for the product in the external market. Mills can produce both alcohol and sugar from sugarcane. With good export prices, they end up focusing on sugar production, which affects the availability of alcohol.

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But the law of supply and demand tends to be, at this moment, the strongest factor for the rise in fuel prices. “In the case of ethanol, we are experiencing a demand inflation. This happens because ethanol is the substitute for gasoline. In economics, there is a tendency that when a product’s price increases, people migrate to the substitute. So, there was a shift to ethanol, and companies raised prices. This is a normal movement in the economy,” the professor explains. Since there is no specific regulation for this market, Vaníria believes that a solution to lower ethanol prices would be to encourage greater production of ethanol in the country. “If there is more supply, a producer will have to be more competitive in relation to another, and the only way to do that will be to sell cheaper,” the specialist asserts, adding that a tax reform could positively impact fuel prices.

Nothing Is So Bad That It Can’t Get Worse, the Sugarcane Harvest Ends in November, and Therefore Ethanol Prices Are Expected to Rise in the First Quarter of 2022.

Unfortunately, the outlook is not good for the coming months regarding fuel prices. This is due to the fact that the sugarcane harvest ends in November, and therefore ethanol prices are expected to rise in the first quarter of 2022.

And there is no expectation for a sharp decline in the dollar, which completely interferes with gasoline prices. “The Central Bank expects the dollar to remain at R$ 5.20 at the turn of the year, and the outlook for 2022 is not good. It’s an election year, and naturally there is uncertainty among investors about the directions of politics and economic plans for the country. We cannot expect a wave of foreign investments,” evaluates Vaníria Ferrari.

Distributors Warn of Risk of Gasoline and Diesel Shortages Due to Petrobras’ Production Cuts

Distributors are worried about a possible fuel shortage starting in November. Retailers say that the Brazilian oil giant Petrobras has cut part of the gasoline and diesel supply for next month, increasing the risk of shortages of the input. According to the Brazilcom distributors’ association, Petrobras— which has a monopoly on refining—made this decision unilaterally.

“Petrobras has self-sufficiency in oil but cannot refine enough for the country’s internal consumption, so distributors are currently trying to buy from Petrobras because it’s cheaper than importing, and since it has no product to offer, it is reducing future sales quotas to avoid running out of product for distributors. As a result, distributors will have to import at higher prices to avoid product shortages and pass on the cost to resale, thereby removing Petrobras and the government’s responsibility for this potential increase to address Petrobras’ deficit,” Brazilcom said.

Petrobras’ Fuel Quota Cuts Threaten the Country with Shortages.

“The reductions implemented by Petrobras, which in some cases exceed 50% of the volume requested for purchase, place the country in a potential state of shortage,” warned the Brazilcom in a statement.

The entity also mentioned “the impossibility of compensating for these supply reductions through import contracts, considering the current difference with international market prices, which are at much higher levels than in Brazil.”

The association also stated that it has already notified the National Agency of Petroleum, Natural Gas, and Biofuels (ANP) about the potential issue. BNamericas agreed with letters from two distributors addressed to the Agency, denouncing that Petrobras’ cuts have caused “serious effects.”