Brazil Ethanol prices expected to remain competitive despite possible increase
Brazil’s ethanol market faces upward price pressure due to increased ICMS taxes on gasoline and rising crude oil prices. Despite this, a stable supply of ethanol ensures it remains competitive, especially through the sugarcane off-season. Ethanol prices could approach 68.5% to 69% of gasoline costs by March, but will remain attractive to flex-fuel vehicles. The supply is sufficient, with mills holding 5.2 billion liters in stock.
The Brazilian fuel market is facing upward pressure that could lead to higher hydrous ethanol prices. However, a stable supply of the biofuel is expected to ensure it remains more competitive than gasoline through the end of the sugarcane off-season in the Central-South region.
One factor driving prices higher is taxation. Starting February 1st, the Tax on Circulation of Goods and Services (ICMS) on gasoline will increase by R$0.10 per liter, reaching R$1.47 per liter. This adjustment creates more room for ethanol prices to rise without losing their competitive edge, according to Tarcilo Rodrigues, director at the ethanol trading company Bioagência.
Additionally, crude oil prices have surged following the United States’ announcement of new sanctions on Russian oil companies, which are among Brazil’s main external suppliers. Over the past week, Brent crude for March delivery climbed 8.3%, further widening the gap between Petrobras’ domestic fuel prices and international market rates.
As of Wednesday, the price difference was R$0.42 per liter for gasoline, according to price agency Argus. If Petrobras adjusts domestic prices upward, ethanol will have more room to increase without losing market share, noted Amance Boutin, an Argus specialist.
During the 2024/25 sugarcane harvest, ethanol remained competitive, with its price equivalent to 61% to 67% of gasoline prices in São Paulo—below the 70% threshold at which the two fuels offer similar cost-effectiveness for Brazil’s flex-fuel vehicles.
Despite a reduction in sugarcane yields, ethanol production remained stable due to increased output from corn ethanol processors, which operate year-round. Since late October, when sugarcane mills in the Center-South began shutting down for the off-season, ethanol prices at São Paulo mills have risen 5.2%, according to data from the Center of Advanced Studies on Applied Economics (CEPEA) of the Luiz de Queiroz College of Agriculture (Esalq/USP).
However, retail prices for hydrated ethanol paid by flex-fuel drivers have shown less fluctuation. From early November to January 11, ethanol prices at São Paulo gas stations rose 2.3%, reaching R$3.96 per liter, according to data from Brazil’s National Petroleum Agency (ANP). At this price, ethanol accounted for 67% of gasoline prices.
Rodrigues of Bioagência said the ethanol market remains balanced. As of December 31, sugarcane mills in the Center-South region held 5.2 billion liters of hydrated ethanol in stock, enough to meet an average monthly demand of 1.73 billion liters through March.
In December, mills sold 1.77 billion liters of hydrated ethanol. Actual consumption at gas stations could be slightly higher since distributors also sold from their inventories, Rodrigues explained.
Mr. Rodrigues estimates that ethanol prices could edge closer to gasoline prices, reaching a parity of 68.5% or 69% by the end of the off-season. “Parity will only break the 70% threshold if there’s a significant delay in the [next] harvest,” he said. A sharp increase in ethanol prices would likely drive consumers back to gasoline, a shift that would be difficult to reverse.
While higher ICMS taxes on gasoline and rising oil prices could put upward pressure on ethanol prices, analysts believe the biofuel’s ample supply will meet demand comfortably, ensuring it remains competitive in the market.
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Source : Valor International
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