Porto Alegre, October 21th, 2024 – The most recent data from the MAPA regarding the formation of anhydrous and hydrated ethanol stocks up to the end of September show the continued growth in volumes seen since the beginning of the year. What began as a strategy to combat low short-term prices in the physical market has now become a necessity for mills to get through a longer off-season without the risk of leaving the market with shortages, which would compromise both their revenues and the possibility of an occasional increase in the anhydrous ethanol blend with gasoline from the current level of 27.5% to 30% over the course of next year, through the coming into force of the Future Fuel Bill.
Putting the data in context, we can see that, at the end of the second half of September, the stocks accumulated since the beginning of the crop for anhydrous and hydrated ethanol in the Center-South, available for sale, hover respectively at around 3.99 and 6.30 bln liters. For hydrated ethanol, we have a smaller margin of overlap in the short, medium and long-term comparisons, with anhydrous ethanol showing higher levels of stock formation in such comparisons. Compared to the same period last year, hydrated ethanol volumes increased by 3%, while anhydrous ethanol volumes increased by 7%.
Compared to the previous fortnight, in this case the first of September, hydrated ethanol volumes had an advantage of 9%, while anhydrous ethanol volumes had an advantage of 8%. Compared to the five-year average for the same period, hydrated ethanol volumes had an overlap of 1.9% in current volumes, while anhydrous ethanol volumes had an increase of 12%. This clearly shows that mills have positioned themselves much more strongly in favor of anhydrous ethanol than in favor of hydrated ethanol, even though the volumes of the former are much smaller than those of the latter.
There is a reading between the lines that SAFRAS & Mercado highlights on this issue. Basically, the greater proportional growth in the volumes of anhydrous ethanol stocks when compared with hydrated ethanol indicates that mills are preparing for a greater demand for anhydrous than for hydrated ethanol volumes. As obvious as it may seem, what is behind this strategy is the mills’ advance preparation for a possible abrupt or gradual decline in the medium to long term in the demand for hydrated ethanol. This should happen in view of the prospect of a decline in the competitiveness of hydrated ethanol against gasoline, which should occur with the lower supply of hydrated ethanol due to the expected crop failure of the current 2024/25 season, which, in addition to having a smaller volume of cane, should have an earlier end to its crushing by 30 to 50 days, depending on production unit. In other words, in order to avoid a shortage of hydrated ethanol, mills are already raising prices in the physical market, so that its competitiveness levels are reduced and demand is controlled to the point of making supply last throughout the upcoming longer off-season. Since the demand for hydrated ethanol will be controlled, gasoline sales should increase as end consumers migrate from biofuel to fossil fuel. Anticipating this series of movements, mills have already shown themselves to be more likely to build up higher levels of anhydrous ethanol stocks, which has been reflected in the evolution of the year-to-date comparisons, mainly in the margin and the five-year average. It is clear that the volumes of hydrated ethanol stocks have been growing in comparative and absolute terms. However, mills are also concerned about building up anhydrous ethanol stocks to meet the projected increase in gasoline demand precisely in a year in which there is a crop failure in progress (of 10%, from 654 to 588 mln tons in the Center-South) which occurs at the same time as the approval of the Future Fuel Bill, which authorizes an increase in the blend of anhydrous ethanol with gasoline. However, for this blend to be effectively increased, the federal government needs to feel comfortable that there will be anhydrous ethanol supply available to meet the extra demand that the increase in the blend will provide. Another important point is the rate of hydrated ethanol stock formation, which showed a slight decline between the beginning and the end of September. In the first half of September, 65 hydrated ethanol stocks were added
However, for this blend to be effectively increased, the federal government needs to feel comfortable that there will be anhydrous ethanol supply available to meet the extra demand that the increase in the blend will bring. Another important point is the rate of hydrated ethanol stock formation, which showed a slight decline between the beginning and the end of September. In the first half of September, 658 mln liters of hydrated ethanol stocks were added, while in the second half of the same month, 528 mln liters were added, with a 19% decline in the margin, while anhydrous ethanol had a 5% increase in the same period, with its stock formation growing from 304 to 320 mln liters in the same comparison period.