Ethanol piles up in Brazil as motorists opt for affordable gasoline

Ethanol stockpiles in Brazil are swelling due to motorists favoring cost-effective gasoline, challenging the country’s prominent sugarcane producers and leading to an increase in sugar production.

In the recent quarter, ethanol inventories of Brazil’s major producer, Raizen SA, surged notably from the preceding three months.

This surge came as the company curtailed sales, hoping for better market prices, shared CFO Carlos Moura. In response, Raizen is boosting its sugar production.

Raizen’s biofuel segment downturn affected its quarterly results, resulting in the recent profit drop.

This decline mirrors trends competitors like Sao Martinho SA and Jalles Machado SA reported.

According to industry group Unica, July saw a 9% drop in pure ethanol fuel sales, with Jalles Machado speculating a 5% year-over-year rise in nationwide stockpiles.

Dry weather may allow producers to allocate more sugarcane juice to sweetener production.

This could swell the sugar supply, especially as Raizen anticipates processing up to 83 million tons of cane, a rise from last year’s 74 million.

While biofuels significantly contribute to Brazil’s economy, ethanol demand is tapering as its prices are less competitive than gasoline.

Given most Brazilian vehicles can operate on a blend of ethanol or gasoline, the attractive gasoline prices are suppressing the demand for ethanol.

The sugar industry’s prospects now hinge on a pivot after petroleum giant Petroleo Brasileiro SA (PETR4) raised fuel prices.

These hikes, unveiled recently, are perceived by Raizen’s CEO, Ricardo Mussa, as an encouraging indication, aligning domestic fuel prices with global markets, allaying concerns of state-imposed price freezes to curb inflation.