The two largest fuel dealers in Brazil announced yesterday that their ethanol purchases from local suppliers will be limited as demand for car fuels has plummeted as a result of the government ordered economic stagnation.
One only wants to purchase the minimum amount, or even less, than agreed in advance contracts, of ethanol. An atypical situation caused by the COVID-19 pandemic calls for this drastic cut.
One company has now even declared Force Majeure and purchases even less ethanol than agreed. In the coming months, too, less of the bio-fuel will be purchased.
The ethanol factories in Brazil now have to limit their production because they cannot sell their product anywhere else. A record harvest for sugar cane is now pending in Center-South.
Analysts assume that sugar cane will now be used to produce more white sugar. This should then lead to Brazil having to sell more sugar to the world market. Today, the futures prices on the derivatives exchange in New York fell 4% to an 18-month low.More sugar from Brazil should ensure that there will no longer be a deficit on the world market, which market participants assumed until a few days ago.
The Brazilian ethanol market has almost come to a standstill. The market participants are completely unsettled. Last year, ethanol contributed 40% to car fuel in Brazil. At that time, the biofuel could still compete with crude oil. Since the beginning of the year, however, crude oil prices have dropped by 65%, and with it gasoline prices. Since then, the margins of ethanol manufacturers have dropped significantly.
Source
HANSA Terminhandel
