Brazilian ethanol prices succumb to plunge in international energy markets

New York —
A global pandemic combined with a breakdown of Organization of Petroleum Exporting Countries, or OPEC negotiations, has led to a broad sell-off in all facets of the commodity markets including the Brazilian ethanol market.

The collapse in international energy markets started last Friday, after OPEC members Saudi Arabia and Russia failing to agree to production cuts in the face of declining oil demand due to the coronavirus outbreak.

Hydrous ethanol prices in the Center-South have plunged over 11% to Real 2,310/cu m ex-mill Ribeirao Preto since the record high price of Real 2,600/cu m ex-mill Ribeirao Preto on February 19.

ICE Brent Crude May futures and NYMEX RBOB April futures have both decreased over 40% from their highs set earlier in the year on January 8.

Petrobras announced a gasoline price decrease of 9.5% at refineries Thursday. The 9.5% price decrease will be instituted on Friday.

This large decrease in the Petrobras gasoline price at refineries will put downward pressure on hydrous ethanol prices in the near-term because of an increase in consumer demand for gasoline.

The aforementioned international headwinds of the coronavirus and OPEC ‘s infighting combined with underlying domestic factors have exacerbated weakness in the Brazilian ethanol market including weaker than expected economic growth and continued forecast for dry weather in March.

Gross domestic product grew 1.1% last year in 2019 and is now expected to experience acute negative growth in 2020 because of the collapse in international energy markets and the potential spread of the coronavirus in Brazil.

Lower economic growth results in a decrease in manufacturing and transportation activity, which results in less demand for fuel including ethanol.

Updated long-term weather forecast for the state of Sao Paulo were predicting a minimal amount of rainfall in March, which means there will be no delay in the harvest and mills should be able to start producing ethanol before the end of March.

No delay in the harvest means no supply shortage of ethanol which was a possible scenario even a few weeks ago.

The Brazilian real has depreciated over 19% against the US dollar Thursday since January 1.

The Brazilian real continued its precipitous fall against the US dollar as traders were anticipating a combination of fiscal stimulus from the Brazilian government combined with monetary stimulus from the Central Bank of Brazil in the near term to prevent an acute recession in the economy from weaker economic growth over the spread of the coronavirus in Brazil.

The depreciation in the Brazilian real against the US dollar year to date has caused FOB prices to drop to lows for the year.

FOB Santos anhydrous ethanol for loading 10-30 days forward was assessed Thursday at $442/cu m, a decrease of $139/cu m for the year since January 1.

Platts assessed Grade B, FOB Santos for 20-30 days forward loading at $453/cu m, a decrease of $115/cu m over the same period.