Porto Alegre, February 22th, 2023 – February has been a period marked by the maintenance of the pattern of disadvantage for hydrated ethanol when compared to raw sugar prices in New York, with both products in cents a pound and placed inside mills. On the one hand, there was a very strong downward vector on hydrated ethanol prices in the physical market, which dropped 4.26% between December and January. This decline ended up mitigated to 3.45% due to the appreciation of the real against the dollar in the same period, which increased by 0.99%. The detail is that in New York the averages for the spot contract, March/23, also retreated but at a much lower intensity, by around 1.59%.
As a result, the sharp decline in raw sugar in New York along with the appreciation of the real against the dollar (which went from BRL 5.25 to 5.20 in the monthly average between December and January) ended up forming a double vector of neutralization of the negativity of ethanol in the physical market. We also had a reduction in the basis paid against raw sugar in Santos, which, despite maintaining its premium tone, fell from an average of 0.70 to 0.45 cents. In terms of dollars per pound, it seems little, but in percentage terms, there is a decline of 35.8% in the basis in Santos. This vector also helped to neutralize the fall of hydrated ethanol in the physical market in comparative terms, leaving the advantage of raw sugar in New York ever smaller.
However, not everything has been favorable to ethanol. This is because the prices paid per contract of decarbonization credit (CBIO) showed strong declines in the same period, which ended up harming the extra remuneration for ethanol. The average per CBIO dropped by 7.62% between December and January, going from BRL 99.92 to 86.76 per contract. When calculating in reals per liter, the remuneration of CBIOs by mills dropped from BRL 0.11 to 0.10. That may not seem much, but in percentage terms it was a decline of 7.62%. This contributed to the fact that the level of negative spread of hydrated ethanol against sugar in New York did not have the strength to reduce its discounts even with the contribution of sugar prices, the falling bases, and the favorable exchange rate for the biofuel.
Last month, SAFRAS & Mercado was expecting a negative spread of 19.19% for hydrated ethanol against sugar, which ended up being 0.76% below the effective negative spread for the period (18.43%). For February, SAFRAS & Mercado expects an average negative spread for the month of 12.97%, slightly lower than the one seen in January, but maintaining the negative tone in the price ratio between hydrated ethanol and sugar in New York.
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