December 18, 2019 / 12:17 PM / a month ago

Exclusive: Brazil corn ethanol push gains momentum as COFCO, AMaggi, Raizen weigh entry

CUIABA, Brazil (Reuters) - Chinese commodities trader COFCO, Brazilian grains group AMaggi and a Shell-Cosan joint venture are working on plans to build their first corn ethanol plants in Brazil, according to their suppliers, breaking sugarcane’s lock on the biofuel locally.

FILE PHOTO: A placard shows prices for ethanol and gasoline at a gas station in Cuiaba, Brazil October 2, 2019. REUTERS/Marcelo Teixeira

The wave of fresh interest from some of the world’s biggest energy and grains players suggests corn ethanol is ready for the big time in Brazil, where sugarcane has been virtually the only source of ethanol in the world’s No. 2 producer of the biofuel.

The impact on commodity markets could be far-reaching, as new plants challenge U.S. ethanol for sales in northeast Brazil and dent corn exports, which grew fourfold in the past decade.

Few expected such an avalanche of investment two years ago, at the launch of a pilot project producing corn ethanol in Brazil’s top grains state of Mato Grosso, but its profitability has sparked a wave of copycats.

The fresh interest from COFCO, AMaggi and the world’s No. 1 sugar producer Raizen - co-owned by Royal Dutch Shell Plc and Cosan SA — could quickly ramp up Brazil’s nascent corn ethanol industry.

The country already has eight plants converting the grain into biofuel, plus six under construction and at least seven more in design phase. By comparison, Brazil has 349 plants producing ethanol from sugarcane, according to the country’s agriculture ministry.

UNEM, an association representing corn ethanol makers in Brazil, estimates annual investments of around 2 billion reais ($476.60 million) in plants in the next eight years.

It sees total ethanol output at 8 billion liters and total DDGs (dried distillers grains) production at 6 million tonnes per year by 2028, products that currently would sell for a combined 20 billion reais ($4.77 billion). DDGs are a byproduct of corn processing that is increasingly used in animal feed.

Although some traditional cane-based operations have met the trend with skepticism, several embraced so-called flex projects, using both corn and cane as raw materials depending on the time of year, a model that offers financial and environmental benefits.

But corn ethanol remains competitive against sugarcane only when produced in areas with ample and low-priced corn supplies, such as Mato Grosso.

The new ethanol plants aim to make more profitable use of Brazil’s growing corn output, which has surged as farmers learned to squeeze both a soy and a corn crop out of the same fields in a single year, with help from the tropical climate.

(See graphic on corn production in Brazil's top grains-producing state: tmsnrt.rs/35G1gPe)

Although it has been hard to export that corn profitably from some corners of Brazil, ethanol production may open up markets with higher margins, said people involved in studies.

Ethanol prices hit a record high in Brazil last week above 2 reais per liter ($1.86 per gallon, price at mill gate, before tax), and a new federal program stimulating biofuels consumption - called RenovaBio - goes into effect later this month.

NEWS COMING ‘SOON’

An engineer working for COFCO on a large, 1.2 billion liter/year corn ethanol plant in Zhaodong, China, said the commodities trader, which operates four cane-based sugar and ethanol facilities in Brazil, is looking at corn ethanol in Mato Grosso.

“We talked about the possibility of making a similar project in Brazil. They are evaluating,” said the engineer, who asked for anonymity because discussions are private.

Another source, a COFCO supplier in Brazil, said the trader’s management was looking to build a corn ethanol plant near its Rondonópolis soy crusher in Mato Grosso.

That COFCO site has a railway that could take fuel to Brazil’s biggest consumer market in the country’s southeast.

“Unfortunately we are not able to comment on any initiatives yet,” said a COFCO spokesman when asked about the plans.

Raizen has also held talks with equipment suppliers to evaluate an investment, according to one of them.

“We’ve met with them four times, just outside Sao Paulo, but they haven’t decided yet,” said Peter McGenity, sales director for Kansas-based plant builder Lucas E3.

Raizen initially denied plans for corn ethanol production in Brazil. When asked about the meetings with suppliers, however, a Raizen representative said the company was “aligned with market trends to make investments in renewable energy that answer long-term environmental needs.”

A fourth source, who works for a European company that offers engineering services for grain processing plants, said AMaggi is also working on a corn ethanol project.

AMaggi, the largest Brazilian grain trader, which owns three soy crushing plants and has partnered with Bunge Ltd to transport soy and corn down the Amazon River and its tributaries, said it could not comment on a potential corn ethanol project.

A spokesman said AMaggi would “soon” make an announcement on its biofuel plans.

Ricardo Tomczyk, the former head of UNEM, took an executive role at AMaggi a month ago.

($1 = 4.1964 reais)

Reporting by Marcelo Teixeira in Cuiaba, Brazil; Editing by Brad Haynes and Matthew Lewis

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