Porto Alegre, March 13th, 2023 – The month of February was marked by a slight reduction in the disadvantage pattern of hydrated ethanol when compared to raw sugar prices in New York, with both products in cents per pound and placed inside mills. Between January and February, the disadvantage dropped from -18% to -16%. On the one hand, we had an important increase in hydrated ethanol prices in the physical market, which rose 2.82% between January and February. This increase ended up growing to 3.46% due to the devaluation of the real against the dollar in the same period, which fell 0.47%.
Moreover, there were average gains of 6.45% in the prices of CBIOs contracts, which went from BRL 86.80 to 92.66. In terms of reals per liter, the CBIOs had the remuneration for mills rising from BRL 0.10 to 0.11. At the other end, futures contracts in New York also surged, with the average for the spot contract, May/23, advancing 3.07%. It should be remembered that in February there was a change in the driver position from March/23 to May/23, with both assets operating at different price scales.
Although sugar in New York advanced strongly, by more than 3%, its premiums for shipments in Santos reduced in the period, with the average basis observed in the month going from +0.45 to +0.14 cents per pound for immediate shipment. It may not seem much, but the decrease in the basis in percentage terms hit 69%. Even though the vector has remained within increases (premiums) and not discounts (differentials), the basis ended up preventing sugar from having a greater force in expanding its advantage over hydrated ethanol in the physical market, reinforcing the dual tone in the market interpretation. This is because, on the one hand, we have the maintenance of the disadvantage pattern of hydrated ethanol prices in the physical market against New York sugar (-16%), but, on the other hand, we have a reduction in this disadvantage in February when compared to January (from -18% to -16%).
Year over year, we see that in February 2022 the disadvantage of hydrated ethanol against sugar was much smaller, at -3.73%. Extending the analysis from the point of view of the 5-year average for the same period, we see an even greater negative distance, with this average for February oscillating at -3.34%. Therefore, the beginning of 2023 has been atypical for ethanol differentials, which have shown great levels of deepening not only in comparison with last year’s average but also with the historical 5-year average for the period.
Last month, SAFRAS & Mercado had forecast a 12.97% negative spread for hydrated ethanol against sugar, which was 3.86% above the effective negative spread for the period of -16.83%. For March, SAFRAS & Mercado expects an average negative spread for the month of 12.71%, slightly lower than the one seen in February, but still maintaining the negative tone in the price ratio between hydrated ethanol and sugar in New York.
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