Brazil sees largest hydrous ethanol stocks draw in almost four years

Sao Paulo (Platts)--19 Feb 2018 404 pm EST/2104 GMT

Brazil's hydrous ethanol stocks as of February 1 were 2.19 billion liters, down almost 25% compared with two weeks earlier and 5% lower than a year earlier, data from the country's agriculture ministry showed.

The draw over the two-week period totaled 725 million liters and was the largest two-week decline since late February 2014, when over 1 billion liters was withdrawn from storage.

The decline came as consumption rates have surged in recent months and as the key Center-South region, the largest sugarcane- and sugar-producing region in the world, entered its intercrop season.

Hydrous ethanol sales by Center-South mills domestically in January totaled a record 1.36 billion liters, up 51.77% year on year, data from industry association UNICA showed.

On a cumulative basis, between the start of the 2017-18 season on April 1, 2017 and the end of January, domestic sales of hydrous ethanol by Center-South mills have increased 4% compared with the year-ago period to 12.9 billion liters.

At the same time, hydrous ethanol production in the Center-South region during the current season totaled 14.72 billion liters, up 1.85% year on year. Production of the biofuel caught up in the latter months of 2017 as remuneration became more profitable than for sugar, prompting producers to switch more of the sugarcane mix.

S&P Global Platts assessed hydrous ethanol in raw sugar equivalence at 17.51 cents/lb on Friday, up 4.13 cents/lb or $91.05/mt, above the sugar No. 11 ICE futures market settlement. In Brazil, hydrous ethanol competes with gasoline for drivers at the pump. The biofuel price must be below 70% of the gasoline to be seen as competitive. Hydrous ethanol prices in Brazil gained a major boost during 2017 after gasoline prices rose, leading to the current record price levels. In July 2017, state-owned oil company Petrobras started to revise its ex-refinery gasoline prices daily to follow international market fluctuations. That led eventually to higher gasoline values, which in turn boosted the ceiling for hydrous prices while keeping ethanol competitive. Hydrous ethanol prices in Brazil's Center-South climbed in January to Real 2,280/cu m, the highest level since Platts started assessing it in April 2014, spurred by limited supply during the intercrop period. Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 2,250/cu m on Friday, a surge of 10.84% from a year ago.

--Beatriz Pupo,

--Nicolle Castro, --Edited by Keiron Greenhalgh,

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