Sugar premiums against ethanol slightly decline in May


  Porto Alegre, June 20th, 2022 – The advantage of sugar over ethanol in the Brazilian physical market fell from 8% to 6% between April and May

    The hydrated ethanol price lows were much more intense than those of sugar in the physical market, with greater pressure from fundamentals. Another recovery of sugar is expected for the month of June. May was a period marked by lower premiums on the part of sugar with up to Icumsa 150 traded in the physical market compared to the average for ethanol in Ribeirão Preto. Despite remaining in positive territory, the price relationship between sugar and ethanol suffered an important shock in the short term due to a 1.89% decrease between premiums of 8.52% observed in April and 6.64% more recently in May.

      This movement of lower premiums between April and May was directly related to deeper levels of lows in the averages of ethanol, between anhydrous and hydrated ethanol, compared to sugar losses, which proved to be milder in the short term. From April to May, hydrated ethanol ended up having a low of 9.05% in the margin, while anhydrous ethanol had a high of 1.04%. In this sense, we have an average decline in ethanol of 4.01% in general. In turn, crystal sugar prices with up to Icumsa 150 ended up retreating 6.03% in the same period.

    With this, the result was a decrease in the sugar premiums against ethanol from 8.52% to 6.64%. Also in April, SAFRAS & Mercado had estimated a premium ratio of 12.49%, which was 5.85% above the effective data for the period. For June, SAFRAS & Mercado projects premiums slightly higher than those seen in May for sugar, at around 9.74%. This must occur in the face of more intense lows to be seen for ethanol than for sugar in the physical market.

    The expectation is that anhydrous ethanol falls by 4.00% and hydrated by 4.23%, which must result in an average decline of 4.11%. On the other hand, crystal sugar prices in the physical market must fall by only 1.33%, allowing for a recovery in the premiums for crystal sugar against hydrated, despite a fundamental scenario of seasonal increase in supply with the progress of the 2022/23 crop in Brazil’s Center-South. Sugar supply has been more restricted in the short term than that of ethanol, as the production mix remains highly concentrated on the manufacture of biofuel since the first movements of the new crop.

     In 2022 the average sugar premiums have fluctuated by 18.23%, with highlight on the first quarter of the year, which had premiums between 15% and 44%. However, from the second quarter of 2022 onward, sugar premium levels against hydrated ethanol fell to single-digit levels. Therefore, despite a slight recovery, the premiums forecast for June must remain within the single-digit level seen throughout the second quarter of this year.

     SAFRAS & Mercado also warns that, at least by the end of July, this premium ratio must remain within this level of less than 10%. This is because the perspective is that the peak of the new 2022/23 crop must occur by the end of July, and until the end of this period the trend is for growth in supply and limited prices for cane derivatives, both for anhydrous/hydrated ethanol and crystal sugar, even though ethanol keeps sustaining a strong concentration in the production mix.