Middle East tensions push up costs for Brazil’s sugar and ethanol sector
Rising Middle East tensions have pushed crude oil prices higher, creating mixed impacts on Brazil’s sugar sector. While ethanol becomes more profitable, surging diesel costs are raising production expenses and squeezing sugar margins. Mills may shift toward ethanol, but overall profitability remains tight heading into the 2026–27 season.
Rising tensions in the Middle East are beginning to impact Brazil’s sugar and ethanol industry, as higher global fuel prices increase production costs and influence mill strategies in the Centre-South region, CPG reported.
According to an assessment by StoneX, the sharp rise in crude oil prices has created mixed effects for the sector. Since February 28, Brent crude has climbed by over 40%, while import-based prices have surged by 48% for petrol and as much as 91% for diesel.
The increase has been felt domestically, with diesel prices rising by more than R$1 per litre on average across the country by March 21. In São Paulo, the increase was around 12%.
Industry analysts say higher oil prices tend to support ethanol revenues, improving income prospects for mills. However, the steep rise in diesel prices has significantly increased operational costs, particularly in farming activities.
Diesel plays a major role in the sector’s cost structure, with a strong link to overall agro-industrial expenses. Estimates suggest that every R$1 increase per litre can raise costs by up to R$36.5 per tonne of sugarcane.
Efforts to ease the burden, including tax relief on diesel, have had limited impact, as price adjustments have continued to push costs higher.
The effects of the Middle East situation are also being seen in the global fertiliser market, with prices of key inputs such as urea and MAP rising due to supply constraints and higher energy and shipping costs. However, the immediate impact on Brazil is expected to be limited, as most fertiliser purchases are made later in the year.
For the upcoming season, production costs of VHP sugar in the Centre-South are estimated at around R$1,730 per tonne at the mill level. Current global sugar prices remain close to the break-even range, meaning mills are operating with limited margins.
Despite this, some cost relief is expected from improved productivity, lower investment in fields, reduced prices for sugarcane inputs and a decline in the cost of third-party cane.
With ethanol becoming more competitive due to higher oil prices, mills are likely to shift more sugarcane towards ethanol production. At the same time, rising diesel costs are putting pressure on sugar margins, prompting mills to adjust their strategies for the 2026–27 season.
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Source : Chinimandi
