SAO PAULO (Reuters) - Rising gasoline prices in Brazil and improved economic prospects in 2019 are boosting the outlook for ethanol sales and mills may once again skew toward the biofuel and away from sugar as the new cane crop approaches.
Ethanol remains more attractive at present and mills will likely heavily favor production of the biofuel as the 2019/20 cane harvest begins in the center-south region in April, according to analysts and a major company in the sector.
Brazilian mills used only 35 percent of the cane last year to produce sugar, a record low amount.
The rest was consumed by ethanol production as sales of hydrous ethanol, the type that competes with gasoline at pumps. Hydrous ethanol sales rose 42 percent as mills sought to escape low global sugar prices.
A repeat of that situation in 2019, even if not as extreme as last year, could reinforce a swing from a surplus of sugar globally to a deficit.
Brazil’s oil company, Petrobras, increased prices for gasoline at refineries several times in recent days following higher oil prices. This week, gasoline reached the highest value since November.
That movement opens room for ethanol prices to rise as well, improving mills’ profit margins.
Luís Henrique Guimarães, CEO of Raízen, the world’s largest sugar maker and Brazil’s leading ethanol producer, said on Thursday that demand for fuel in the country is expected to rise in 2019 for the first time in three years.
“We see the economy recovering, improving people’s income. Fuel demand ... should rise,” he said, adding that the company is upbeat on ethanol in 2019.
Plinio Nastari, chief analyst at sugar and ethanol consultancy Datagro, sees current returns on raw sugar sales still around $1 per pound, below the equivalent on ethanol prices.
“Sugar would have to rise to a premium over ethanol to lure mills to produce more of the sweetener,” he said.
Broker and consultancy INTL FCStone estimates that current ethanol prices in Sao Paulo, Brazil’s largest fuels market, are equivalent to a hypothetical sugar price of $14.39 per pound considering New York futures.
FCStone sugar analyst João Botelho believes mills could change the mix slightly toward sugar due to the expectation of a global sugar supply deficit, but they would still produce more ethanol than the sweetener when cane processing starts in April.
Reporting by Marcelo Teixeira; Additional reporting by Rodrigo Viga Gaier, in Rio de Janeiro; Editing by Bill Trott