Brazilian hydrous fuel ethanol demand surges in September: ANP

Sao Paulo (Platts)--31 Oct 2017 318 pm EDT/1918 GMT

Hydrous fuel ethanol demand in Brazil in September surged 16% to 1.31 billion liters from August, but was down 2% year on year at 1.31 billion liters, National Petroleum Agency data showed Tuesday.

Demand was last higher in September 2016 when it reached 1.34 billion liters, the data showed.

The Center-South region accounted for 93% of total demand, or 1.22 billion liters, while the balance was consumed in the North-Northeast region.

Hydrous fuel ethanol is used in flex-fuel vehicles and competes with gasoline at the pump, where it is competitive when its price is 70% or less than the gasoline price. Gasoline has 30% more energy content than its competitor hydrous.

The rise in demand comes as state-led Petrobras continued to revise its prices, with the accumulated increase since the start of the new pricing policy reaching 13% (July 4-October 31), giving hydrous prices more room to increase and still remain competitive at the pump.

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Brazilian hydrous prices averaged 68.4% of gasoline prices in September, down from 69.1% in August, and down from 73.1% in September 2016.

Hydrous prices at the pump were on average Real 2.633/liter in September, while gasoline were Real 3.881/liter.

In the first nine months of the year, total hydrous demand was 9.43 billion liters, down 16% on the year, ANP data showed.

Hydrous demand has been lower most of 2017 due to tight supply since last year and consequently higher domestic prices, which curb demand at pump. Producers have directed more cane to produce sugar rather than hydrous ethanol, due to higher prices for sugar.

However, amid a recent rise in hydrous ex-mill prices combined with lower sugar prices, producers have started to direct more of the sugarcane towards ethanol output.

The increase of the mix to ethanol has translated into a recovery of production rates, which although still below last year are now much smaller compared with earlier in the current season, when the decline was in the double digits.

Hydrous production in the 2017-18 season, which started April 1 in the Center-South, is down 4.1% on the year to 11.94 billion liters until October 16, data from industry association UNICA showed. The total volume includes a small volume of ethanol from the feedstock corn.

For October, demand is expected to have reached roughly 1.3 billion liters in the CS region as despite a surge in hydrous prices at mills, the relation at the pump remained positive towards the biofuel amid steer increases of gasoline prices.

Higher hydrous demand translates into lower gasoline demand, which is blended with 27% anhydrous ethanol under a national mandate.

Anhydrous consumption in Brazil in September was 944 million liters, down 0.4% on the month, and 2% lower on the year, ANP data showed.

January through September, anhydrous demand rose 6% on the year to 8.9 billion liters, the data showed. The Center-South region accounted for 72% of total consumption, while the balance was consumed in the North-Northeast.

--Beatriz Pupo,

--Edited by Richard Rubin,

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