November 23, 2011

Brazilian Consumers Purchasing Less Ethanol and More Gasoline

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Every time an owner of a flex-fuel car pulls up to a gas pump in Brazil, they can quickly determine which fuel is more economical, E100 (pure ethanol) or E25 (gasoline with a 25% mixture of ethanol). If the E100 is priced 70% or less than the price of gasoline, it is more economical to use E100. Ethanol contains 70% of the energy that gasoline contains, so when a car uses ethanol it only gets 70% of the miles per gallon compared to when the car burns gasoline.

Due to the current high prices of ethanol, motorists in Brazil are opting to use more gasoline and less ethanol. In Cuiaba, the capital of Mato Grosso, gasoline station owners are reporting that gasoline sales are up by as much as 10% compared to earlier in the year. One owner reported that in January of 2011, 70% of his sales were E100 and 30% were gasoline (E25). Currently he is reporting that 60% is E100 and 40% is gasoline (E25). In January ethanol was selling for R$ 1.60 per liter (US$ 3.57 a gallon) in Cuiaba and now it is selling for approximately R$ 1.95 per liter (US$ 4.35 per gallon).

The trend has been similar all across Brazil, less ethanol and more gasoline sales. The National Petroleum Agency (ANP) is reporting that between January and October of this year, E100 sales in Brazil declined 17.9%. In contrast, gasoline sales during the same period increased 21%.

According to the president of the Mato Grosso Syndicate for Petroleum, Natural Gas, and Biofuels (Sindipetroleo), Aldo Lacatelli, the price of ethanol is only going to decline to more comfortable levels when the new sugarcane harvest begins next March or April. During the intra-harvest period (December to March), ethanol supplies are generally tight and prices are usually high as a result.

Prices for ethanol during this intra-harvest period are predicted to be very high due to the disappointing sugarcane harvest that is just wrapping up. Ethanol supplies are expected to be very tight in spite of the fact that Brazil might import as much as one billion liters of ethanol. Ethanol prices hit record levels during the last intra-harvest period and it would be no surprise if new records are set again this year.