CHEAPER ETHANOL TO BOOST BRAZIL DEMAND, AID SUGAR
05.29.07 - Leído 158 veces. Enviar esta notaInae Riveras
World sugar prices are expected to firm after Brazilian ethanol prices fell close to production costs and boosted domestic demand for the cane-based fuel, a leading Brazilian analyst said
SAO PAULO, Brazil; May 29, 2007.- Ethanol prices may have bottomed after falling sharply since Brazil’s main cane growing center-south region started harvesting an expected record sugar cane crop in April.
“I don’t think ethanol prices will fall below production costs because the flex-fuel vehicle market could absorb the extra supply,” Plinio Nastari, president of the Sao Paulo-based Datagro consultancy, told Reuters.
A greater share of this year’s cane crush is seen destined for ethanol due to strong flex-fuel demand, and this would reduce Brazil’s sugar export surplus.
“Expectation of a smaller sugar surplus should result in a convergence of sugar and ethanol prices,” Nastari said. “It doesn’t mean that sugar prices will return to 11 cents…but prices should recover.”
Nastari said that the growth of the flex-fuel vehicle fleet had brought greater short term elasticity between ethanol supply and demand with consumption rising faster when prices fell.
“Given that this market can absorb the surplus ethanol, I think that producers won’t undermine prices in order to export the fuel,” he said.
Nastari differs from many market players who see ethanol exports as an escape valve from a possible domestic surplus.
Despite a big drop in recent weeks, ethanol prices are still lower than world sugar prices.
The value of hydrous ethanol, used by flex-fuel vehicles, is equivalent to an fob sugar price of 11 cents per lb, compared with 13.40 cents two months ago.
Benchmark front July raw sugar futures are now trading in New York at around 9.40 cents per lb.
Brokers said this week that ethanol export business started to emerge following the fall in prices. In the past few months domestic sales were much more profitable.
Nastari said that mills were giving preference to ethanol in the cane crush and that the sugar export surplus should be close to last year’s level.
Datagro sees 53.1 percent of the 2007/08 (May/April) center-south cane crush going into ethanol, up from 50.5 percent last year.
It estimates that the region, which grows 85 percent of Brazil’s cane crop, will crush 415 million tonnes of cane, versus 371 million tonnes in 2006/07.
(Reuters)
