Supply and demand: Ethanol price drops after reduced demand for the fuel

With the price close to that of gasoline, Ethanol is no longer the 1st option for consumers and its value is reduced at gas stations

After reaching R$ 5,499 per liter last month, the price of ethanol began to drop at gas stations in the city of Rio Preto. The high price charged by sellers caused a drop in competitiveness between ethanol and gasoline — which became the first option for a good number of drivers when filling up. Consequently, the lower demand for fuel led to lower prices.

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A survey by the National Agency of Petroleum and Natural Gas (ANP) showed that the highest price of ethanol in Rio Preto is R$ 4,999. The value, however, is still outdated compared to the current prices charged in the market, since the last quotation available is for the week of November 27th to December 4th.

Since the beginning of the week, drivers found a liter of ethanol being sold at R$ 4,749 — a drop of R$ 0,75, or 13%, in relation to the maximum price registered in the last month.

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“This result is the result of a change in supply and demand”, said Antônio de Padua Rodrigues, technical director of the Sugarcane Industry Union (Unica). He claims that the industries were restricting the supply of ethanol, in a way that was not compatible with the demand.

“With the drop in demand in the months of October and November, the equation was inverted and made inventories larger than current demand. Therefore, it was possible to see in the last 30 days an 11% drop in both hydrous and anhydrous ethanol“.

In recent days, the average liter of hydrous ethanol in the state of São Paulo was quoted at the plants for R$ 3,459 (not including freight and taxes), according to Cepea. At the end of October, the price of a liter was R$ 3,828. While anhydrous ethanol was quoted at R$ 4,000 per liter at the end of last week, compared to an increase of R$ 4,5353 per liter at the beginning of last month.

This situation may also lead to a decrease in the price of gasoline, since it uses 27% of anhydrous ethanol in its composition. “The 11% drop in the price of anhydrous ethanol has not yet been reflected in the price of gasoline, as it has not yet reached hydrous ethanol, but at some point it probably should. The drop has already happened at the producer, now the market is free for both distribution and resale”, recalls Antônio.

Ethanol price trend is to fall

Economist from the Faculty of Business and Economics (FEA) at USP, Luciano Nakabashi, reaffirms that gasoline is the first option for drivers at times when the price of biofuel is above the 70% margin when compared to fossil fuel. “Today, in most places the price of ethanol is more expensive than 70% of the price of gasoline”.

According to the expert, after reaching the peak, the tendency is for fuel prices to continue falling in the following year. “It may be that prices continue at high levels, but going higher than they are I think is quite difficult,” he declares. Still according to Nakabashi, the new variant of covid-19 could influence the world economy. “If there is this effect, it will be a reduction in the price of oil.”

According to the economist, as oil is related to the foreign market, it influences the price fluctuation of other fuels, such as the case of biofuel. “Gasoline affects the price of ethanol much more than the other way around”.

Commission approves project to stabilize price

The Senate Economic Affairs Committee (CAE) approved on Tuesday, December 7, a bill that creates a plan to stabilize the price of oil and derivatives in Brazil and requires a change in Petrobras' pricing policy. The project was unveiled in the context of dissatisfaction with rising fuel prices. The text will go to vote in plenary. If approved, it will need to be considered by the Chamber of Deputies.

The PL aims to change Petrobras' readjustment price policy, which is based on variations in the price of a barrel of oil in the global market and the exchange rate. According to the plan, the national prices defined by producers and importers of oil derivatives will need to take as a reference the average quotations of the foreign market, the internal costs of production and the costs of importation, “provided that applicable”.