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Ethanol share in Brazil's fuel mix set to rise on Petrobras price decision


Ethanol's share of the fuel mix in Brazil is expected to increase over the next few months following a decision by Petrobras to increase gasoline and diesel prices. Gasoline prices will rise 6% and diesel prices 4% at refineries, state-led Petrobras said Tuesday. The price increases were effective Wednesday.

The decision was the first fuel price adjustment by Petrobras Chief Executive Aldemir Bendine, who took over control of the company in February.

According to Kingsman, an analysis unit of Platts, gasoline prices at the pump are expected to increase about 3%, which should give hydrous ex-mill ethanol space to increase to R$1,700/cu m ex-mill Ribeirao.

In fact, offers were seen higher Wednesday morning at R$1,750/cu m ex-mill Ribeirao Preto, an increase of 12% from Tuesday.

Market players, however, said it will take a least a week to know hydrous ex-mill prices will be assessed.

In Kingsman's calculation, to keep the parity at current 63.9% in the six main consuming states, which account for 85% of Brazil's total demand, the hydrous price at the pump could rise roughly 3%. This would already be marginal but becomes even more so on the back of the diesel price increase and its impact on costs.

While the gasoline price increase at the pumps is immediate, any gains in hydrous ethanol ex-mill levels will take time to reach retail outlets.

This could improve the parity even more in favor of ethanol in the next 10-15 days and should prompt consumers to keep choosing the standalone biofuel.

Domestic demand could reach a new record in October roughly 1.7 billion liters of hydrous ethanol with supply tightness during the intercrop season a given certainty, according to analysis by Kingsman.

The impact is expected to be felt in the consumer pockets, with an increase of 3.6% on the price of gasoline at the pump, according to an estimate by Itau Unibanco bank in the Brazilian O Globo newspaper.

In real money terms, regular gasoline is expected to move to R$3.72/liter immediately, from around R$3.60/liter previously, the bank said.

Source: London (Platts)1 Oct 2015 630 am EDT/1030 GMT