June 16, 2011 / 8:46 PM / 8 years ago

Brazil's ethanol exports dry up due to price hike

SAO PAULO (Reuters) - Recent sales of Brazilian ethanol to the United States now appear to have dried up after soaring local prices made it more viable to deal on the local market, brokers and an analyst said on Thursday.

After importing corn-based ethanol earlier this year, mills in Brazil reversed the flow of trade with the United States and sold about 300 million liters (79 million gallons) of cane-based ethanol to the U.S. over the past few months. Some of it went via the Caribbean for tax reasons.

But that flow has now run dry.

“The window has closed, there’s no arbitrage. Actually we are now more likely to import than to export in light of these high local prices,” said Marcelo Andrade, director at Rio de Janeiro-based Ecoflex ethanol brokerage.

Several brokers and analysts see average ethanol prices in Brazil this season (April-March) higher than in the previous two seasons due to strong demand and tight supplies.

“Exports are not feasible anymore,” said Plinio Nastari, president of Datagro analysts, on a news conference on Thursday in which he trimmed sugar and ethanol output views for the season, mainly due to weather problems.

Agricultural think tank Cepea/Esalqdata showed hydrous ethanol traded at 1.19 real (74 cents) per liter before tax, at Paulinia distribution hub on Wednesday, up nearly 20 percent from mid-May. Anhydrous ethanol has risen in tandem.

In March, before the crushing of the current 2011/12 cane crop, ethanol prices hit record levels due to strong demand combined with low availability of the fuel. Hydrous ethanol hit a high of 1.69 real per liter in Paulinia on March 23.

Recent export deals to the U.S. market were made feasible because of premiums importers paid in order to meet their mandates.

Hydrous ethanol also headed to the United States through the Caribbean, where it is reprocessed and turned into anhydrous. Under the Caribbean Basin Initiative trade pact, the product can then get into the U.S. market without paying a 54 cent-per-gallon import tariff.

Outstanding shipments still to be sent will leave Brazil between June through August, when Brazil’s cane harvest gets to its peak.

Reporting by Inae Riveras; Editing by Marguerita Choy

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