With Good Prices, Ethanol Plants Bet on Anhydrous to Ensure 27% Blend in Gasoline

Ethanol Reached Record Prices Throughout the Year, but Anhydrous Proves More Advantageous for Mills as Gasoline Prices Continue to Rise in Brazil

Ethanol mills are betting on anhydrous, which is mixed with gasoline, and the fuel is gaining space in Brazilian production. In the first three months of the 2021/22 sugarcane harvest, from April to June, 35.54% of the total produced in the Center-South was anhydrous. This share is expected to grow, according to the Commercial Director of BP Bunge Bioenergia, Ricardo Busato Carvalho. “Our market intelligence predicts that, by the end of the harvest, nearly 40% of ethanol production in the Center-South will be anhydrous,” he said.

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According to the data, this season, the share of this type of ethanol in total production is the highest for the period since 2017/18, when Brazil was still undergoing a change in gasoline pricing policy that began to see more frequent adjustments based on international parity.

Anhydrous Ethanol Prices Prove More Advantageous

Currently, anhydrous has proven to be more economically advantageous than hydrated ethanol – which is added directly to vehicles, without any mixture.

“This harvest, the price of anhydrous has risen significantly,” says Stonex sugar and ethanol consultant Bruno Lima. “In mid-May, (the price) reached 14% above hydrated.” Additionally, mills do not want to jeopardize the policy that mandates a 27% blend of the biofuel into gasoline C – industry entities representing distributors have called for a reduction of this percentage, citing the sugarcane harvest shortfall and the high price of the biofuel.

“No one wants to put this at risk,” said the technical director of the Sugarcane Industry Union (Unica), Antonio Padua Rodrigues. He recalls that the anhydrous ethanol market is regulated and has already been contracted with distributors.

Anhydrous is usually traded under annual contracts with distributors. Hydrated ethanol, on the other hand, is primarily sold in the “spot” market, or on-the-spot.

Ricardo Carvalho of BP Bunge Bioenergia sees the market capable of meeting the demand for fuels. “No country in the world can change the mix like Brazil, which also has good flexibility between anhydrous and hydrated,” he emphasized.

This view reflects that of the majority of the Brazilian sugar-energy sector, which considers the chance that supply will not meet demand to be small. Some suspect that distributors’ requests are more related to price than to availability.

Ethanol Prices Reached Record Highs Throughout the Year

Ethanol prices reached record highs throughout the year, due to the expectation of a sugarcane harvest shortfall in Brazil, the rise in sugar prices, and a rebound in oil prices following a partial resumption of consumption with the start of COVID-19 vaccinations.

The importation of ethanol has also been lower this year, as the dollar and the price of corn (the raw material for biofuel in the United States, where Brazil seeks to cover any shortfall) discourage purchases from abroad. As a result, the biofuel also helps to push up gasoline prices. With the high volume of sugar already fixed by mills in a year of lower sugarcane production due to climate conditions, anhydrous and hydrated prices are expected to remain supported.

Lima of StoneX says that mills “are very committed to sugar fixation, so the space for mix changes is smaller.” Forward sales of the sweetener are at high levels. The price of sugar in reais reached nominal record highs throughout the year.

Many mills are considering changing mixes, but few are executing them,” says the analyst. “We see more contract cancellations due to performance related to the harvest shortfall than for switching to ethanol.”