Brazil's Ethanol Market Faces Challenges and Price Surge Amid Severe Flooding

Santos (Brazil): In the week starting May 3rd, severe flooding in Rio Grande do Sul disrupted Brazil's Ethanol market. The floods blocked crucial transportation routes, impeding the delivery of biofuels to retail hubs. In response, Brazil's oil regulator ANP temporarily reduced the mandatory Ethanol and biodiesel blend in fuels to mitigate transportation issues caused by heavy rainfall. The anhydrous Ethanol blend in gasoline was lowered from 27% to 21%.

These regulatory adjustments aimed to address logistical challenges and ensure the continuous supply of fuel. The floods had significant human and economic impacts, prompting President Luiz Inácio Lula da Silva to sign a decree facilitating relief spending, federal funding, and tax waivers for the affected state. Amid these difficulties, the price of anhydrous Ethanol FOB Santos rose by USD 25 per metric ton (3.4%), reaching USD 750/MT.

Despite a promising start to the sugarcane harvest season, Brazil's Ethanol supply faced constraints. Mills in the south-central region processed 15.81 million tons of sugarcane, marking a 14.1% increase. However, Ethanol production showed mixed results: total output reached 840.73 million liters (a 7.2% increase), with hydrous Ethanol production surging by 39.36% while anhydrous Ethanol production declined by 48.61%. Corn Ethanol, accounting for 32% of production, saw a modest increase of around 13%.

Domestic sales of Ethanol soared to 1.35 billion liters, reflecting a substantial 41.93% increase from the previous year. However, the market struggled with supply shortages due to unexpected production disruptions and scheduled maintenance at plants. These constraints underscored the market's vulnerability to such disruptions, leading to upward pressure on prices.

In the U.S., the Ethanol market also faced potential supply constraints and price fluctuations due to unexpected production disruptions, scheduled maintenance at Ethanol plants, and variations in sugarcane prices. These factors, combined with high demand, led to an increase in prices.

Overall, Brazil's Ethanol market is navigating through a period of heightened demand and constrained supply, underscoring the need for adaptive strategies to manage market dynamics effectively. The combination of environmental factors, production disruptions, and fluctuating demand highlights the market's complexity and the necessity for vigilant monitoring and flexible responses.

Forecasting prices in Brazil for the coming months indicates a continued bullish market. In May 2024, a price increase is expected due to reduced sugarcane harvesting and increased Ethanol demand for gasoline blending, driven by dry weather affecting hydropower. June 2024 is anticipated to see a further price rise as Ethanol production typically decreases, tightening domestic supplies. By July 2024, prices are projected to increase, coinciding with Brazil's sugarcane harvest season and increase in procurement ahead of the peak demand season.