July 11, 2008

 

Brazil may export 3 billion litres of ethanol to US this year

Brazil will likely export at least three billion liters of ethanol to the US this year as a result of soaring ethanol prices in the US and cheap ethanol prices by comparison in Brazil, said commodities risk analyst firm FC Stone on Thursday.

 

The volume could be even higher if not for a US$0.54 per gallon import duty imposed on Brazilian ethanol by Washington, FC Stone said in a 29-page monthly sugar and ethanol report from Sao Paulo.

 

Brazilian ethanol is made from sugarcane as opposed to corn ethanol in the US.

 

Industry estimates that Brazilian cars will consume 18 billion litres of ethanol this season, allowing for seven billion for export.

 

US demand for Brazilian ethanol is on the rise due to higher corn ethanol prices there and difficulties shipping ethanol from the flooded regions of the Midwest to major consumption states like California and Florida.

 

Each day, Brazil exports about 20 million litres of ethanol, most of it going to the US.

 

While US corn ethanol prices are rising, ethanol prices in Brazil are falling.

 

While ethanol prices in Sao Paulo in June fell 2.9 percent to 1.25 Brazilian reals (US$0.77) per litre, prices for US corn ethanol rose 23 percent in June, according to FC Stone's estimates.

 

Average US ethanol prices were US$2.95 per gallon compared to US$2.40 per gallon in May. Litre for litre, US ethanol prices are more than triple the prices of Brazilian ethanol.

 

With US ethanol prices averaging US$2.95 per gallon in June, and corn prices at US$6.78 per bushel, US ethanol companies in theory could be making profit margins of US$0.33 a gallon, according to FC Stone.

 

With tax credits, the margins widens to US$1.17 per gallon, which is still very attractive and should keep ethanol demand high, FC Stone analysts wrote in the report.

 

US corn ethanol prices are around 37 percent less than gasoline prices, which are averaging around US$4.05 per gallon.

 

The gap between ethanol and gasoline prices are wider in Brazil, with ethanol 52 percent cheaper than gasoline.