Demand for ethanol by distributors is the lowest in 20 years

In recent months, a drop in demand for ethanol at gas stations could be observed due to the high price compared to the value of gasoline. With this, a chain reaction is being created, which is leading to a decrease in the price of ethanol at the pumps.
The result of the current situation was also verified by the fuel producing plants – in January, industries in São Paulo sold the lowest volume of hydrous ethanol for the month in 20 years to distributors, according to research by the Center for Advanced Studies in Economics Applied (Cepea/USP).

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The survey also reported that the volume traded in the first month of 2022 is the lowest since 2002, and an even smaller amount was recorded in November 2021. Compared to the month of December, the volume of ethanol traded was 17% lower in January of this year.

As drivers have preferred gasoline to ethanol, distributors have reduced the purchase of the latter, a fact that has made the stock at the plants high. In view of this, producers are lowering prices and, little by little, this reduction reaches final consumers.

According to data from the Sugarcane Industry Union (Unica), the price of hydrous ethanol sold by mills in the Rio Preto region decreased by 6% in the first week of February, compared to the last week of January. As a result, at gas stations, the price of a liter of ethanol is already the lowest since the last five months.

Antônio de Padua Rodrigues, Unica's technical director, points out that the decrease in the volume traded by producers has gradually increased since September. According to him, the drop is so significant that the mills' inventories are greater than demand, which is why prices drop daily – to make ethanol more competitive and to restore favorable demand.

Other factors that motivate the drop in the price of ethanol

Among the main reasons for the decrease in ethanol consumption today are the slowdown in the economy, the impact of the Ômicron variant of covid-19 and the current price of fuels, which are impacted by the foreign market.

“This drop in demand for ethanol, and other fuels in general, is mainly due to the rise in prices motivated by oil prices on the international market, in addition to the appreciation of the dollar against the real,” said Jacyr Costa Filho , President of the Superior Council of Agribusiness (Cosag) of Fiesp.

Economist Luciano Nakabashi, from the Faculty of Business and Economics (FEA) at USP, points out several reasons that corroborated the increase in the price of ethanol in 2021, such as the crop failure due to climatic factors, greater allocation of plantations for production of sugar and the stagnation of production volume.

Increase in the price of ethanol represents a disadvantage

The drop in hydrous ethanol sales volume is justified by the price of biofuel at pumps compared to gasoline. In recent months, the price ratio between hydrated ethanol and gasoline at gas stations in the city of Rio Preto has made the condition favorable for fossil fuel – in January the ratio was 74,8%. According to the National Petroleum Agency (ANP), in the last month, the average price of gasoline was R$ 6,101/liter, and that of hydrous, R$ 4,568/liter.

In the month of February, it is possible to find the price of a liter of gasoline at R$ 6,009 and that of ethanol at R$ 4,349, which represents a ratio of 72%. According to specialist analysis, it is advantageous to supply ethanol only when the price per liter is less than 70% of the value of gasoline.