December was a period in which the keyword that defined the physical market for hydrated ethanol was “balance.” This solid balance between supply and demand kept prices stable in the physical market negotiations for hydrated ethanol based in Ribeirão Preto. On the one hand, we have the month of greatest demand of the year within the seasonality of end consumers who, stimulated by the holiday period, maintained a firm demand for fuels in general, including hydrated ethanol.
On the other hand, we have high levels of ethanol supply, both for cane and corn hydrated ethanol. Cane ethanol supply levels have remained high due to the rapid recovery of the current 2024/25 cane crop after the drought observed between April and September 2024. The detail is that from October onward, the rains began to fall heavily on the cane fields of the Center-South, leading to a rapid improvement in their conditions. Moreover, January should be the month with the highest level of precipitation of the year, with volumes expected to accumulate between 280 and 350 mm in the cane fields of the Center-South.
As a result, many mills in the region have even canceled their plans to end the 2024/25 crop earlier and continued with firm crushing patterns in December and January. SAFRAS & Mercado expects that at least 15 mills will continue their regular grinding process in the Center-South region in January, compared to an average of 5 mills that historically continue to operate at this time of year. Besides cane ethanol, corn ethanol has also made significant progress since the previous crop.
Just to give an idea, in the first half of November, corn accounted for 31% of the ethanol produced in the Center-South region, against only 17% at the same time last year. In the second half of November, corn ethanol (both anhydrous and hydrated) accounted for 29% of the total ethanol supply in the Center-South region, against only 20% of the supply at the same time last year. The corn ethanol share only fell from 31% to 29% of supply between the first and second half of November due to the sharp increase in the production of cane ethanol, which, in essence, also further reinforces the growth in the supply of ethanol as a whole.
This high supply of both types of ethanol has maintained the price pattern without a basis for further increases in December in the Ribeirão Preto region, where the average hit around BRL 3.15 a liter. This price was only 0.16% higher than the average for November and 23.96% higher than the average seen at the same time last year. Compared to the five-year average for the same period, there is still a 10% decline, even though this is much smaller than the 15% decline compared to the average in November. Both the annual and the five-year averages are with prices corrected by inflation and brought to present values, without considering the nominal prices of the time.
On the demand side, in December there was also the maintenance of hydrated ethanol competitiveness levels against gasoline at around 65%, average seen since July. Only at the end of December did this price correlation suffer a slight decline from the perspective of hydrated ethanol competitiveness against gasoline, which went from 65% to 66%, although at this new level the pattern of strong hydrated ethanol competitiveness against fossil fuels remains present.
Last month, SAFRAS & Mercado expected average prices for hydrated ethanol based on Ribeirão Preto in the range of BRL 3.18 a liter, which was 0.95% higher than the effective average seen over the period of BRL 3.15 a liter. For January, SAFRAS & Mercado estimates average prices of BRL 3.18 a liter, which should indicate a 0.95% increase in the margin, compared to the average prices in December, as well as a 37% increase in the year, besides a 4% lower position compared to the five-year average for the same period.
