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Limited demand due to covid-19 presses down ethanol quotes, despite lower production

The pandemics has changed the routine of companies and people around the globe. Social distancing and mobility restrictions have decreased the consumption of products and services, including biofuel ethanol.

 

Still, although the ethanol production has decreased in the Central-South in Brazil in the 2020/21 season, prices are moving down. This scenario is the opposite of that observed in the crop before (2019/20), when the firm demand, due to the advantage of the biofuel compared to gasoline at pumps, drove the upward trend.

 

Data from Cepea indicate that average prices for both hydrous and anhydrous ethanol in São Paulo state decreased significantly in the first quarter of the crop (April, May and June) compared to the same period of the 2019/20 season. As for hydrous, the average ethanol value in this period (considering CEPEA/ESALQ monthly Indexes from April to June) dropped 18.4% compared to the same quarter of 2019, in real terms (IGP-M June/20). As for anhydrous, the decrease was 19.7% in the same period.

 

From the beginning of the current season (April) to the first 15 days of July, hydrous ethanol sales in the Central-Southern Brazil amounted 4.88 billion liters, against 6.67 billion liters in the same period of 2019, downing 27%. As for anhydrous, sales decreased 14.5% in the same period, totaling 2.12 billion liters in the partial of the current crop – data from Unica (Brazilian Sugarcane Industry Association).

 

The ethanol supply from other Central-South states in São Paulo also reinforces the pressure on quotes. The product, especially from Goiás, Mato Grosso, Minas Gerais and Mato Grosso do Sul, arrives in São Paulo with attractive prices, considering costs of logistics and transference.

 

Mills in the Central-South have reduced the allocation of sugarcane to ethanol in the current crop, aiming to produce sugar, due to its high international demand. Moreover, high dollar quotes have intensified sugar exports. It is important to mention that some international consulting companies project lower sugar production in the 2019/20 global season (which will be over in September 2020) and a deficit of the product, given that it is a cheaper product in a scenario of pandemics.

 

In the partial of the crop (from April up to the first 15 days of July), while the sugar production in the Central-South increased 50% in relation to the same period of the season before, the ethanol production downed 5.9%, according to data from Unica.

 

In this scenario of lower consumption of biofuels, ANP (National Agency of Petroleum, Natural Gas and Biofuels) changed contracts of anhydrous ethanol, from 90% to 74% of the total purchased, from July 2020 to May 2021 – ANP Resolution 819/2019.

 

This change reduces the pressure to buy anhydrous through contracts by distributors and opens room for more flexible acquisitions in the spot market. As for mills, they can focus on producing other products, mainly sugar, which has been more profitable.

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