Jan 26, 2010
Brazilian Government Looking For Ways To Ease Ethanol Shortage
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The volatility of ethanol prices in Brazil, which has resulted from spot shortages of the fuel, has caught everyone's attention in the country from the Brazilian President down to the motoring public. As a result, there are many proposals being floated in Brazil as ways to even out the supply of the fuel including: reducing the percentage of ethanol in gasoline, eliminating the import tariff on ethanol, increasing the storage capacity for ethanol, and allowing futures trading in ethanol.
The proposal for reducing the percentage of ethanol in Brazilian gasoline from 25% to 20% is already set to take place starting February 1st and it is scheduled to last for a period of 90 days. This reduction will reduce the demand for ethanol by 300 million liters or about a two-day supply of the fuel.
Another proposal is to temporarily eliminate the 20% import tariff imposed on imported ethanol. The source of imported ethanol of course would be corn-based ethanol produced in the United States. Officials from Petrobras are opposed to the reduction and they testified last week that there is enough ethanol in the country to bridge the spot shortage until the next sugarcane harvest resumes in late February or early March. They are very confident that by April or May the shortage of ethanol will be resolved.
The Brazilian Minister of Agriculture, Reinhold Stephanes, is pushing an R$ 2.5 billion plan to build enough storage capacity in Brazil to accommodate 5 billion liters of ethanol, or enough for a three-month supply of the fuel. The project is being financed by the National Development Bank (BNDES).
The recent price rise in ethanol has been the biggest in recent memory and only in the state of Mato Grosso is there still an advantage to use ethanol over gasoline. In the remainder of Brazil, it is now more economical to use gasoline instead of ethanol. The most expensive ethanol in Brazil is in the state of Rio Grande do Sul where it now costs R$ 2.314 per liter or US$ 4.90 a gallon. The cheapest ethanol is found in the state of Mato Grosso where it costs R$ 1.708 per liter or US$ 3.60 a gallon. As a comparison, the most expensive gasoline in Brazil costs R$ 2.915 per liter or US$ 6.15 a gallon and the cheapest gasoline is R$ 2.415 per liter or US$ 5.09 a gallon.