Brazil closely monitoring ethanol exports to secure local supply

Rio de Janeiro (Platts)--15Mar2006

Brazil's government has begun to "closely monitor" the country's ethanol producers to make sure they provide ample supply to the domestic market before exporting more product, a spokeswoman from the country's Development, Industry and Trade ministry told Platts Wednesday.

The monitoring process could mean Brazil will delay granting new export licenses for ethanol, the spokeswoman said. All requests for export licenses that have been turned in since February 22 are subject to scrutiny, she said. Brazil, the world's biggest ethanol producer and exporter, has seen domestic prices for the fuel spike by about 25% at the pump this year, on domestic supply concerns, during the period between the country's sugarcane harvests.

Ethanol makes up about 40% of the fuel used by Brazil's consumer vehicles, such as cars. Soaring oil prices and the price of refined sugar, which is near a 25-year high, also have prompted a rise in ethanol prices, as sugarcane farming giants in Brazil can easily switch between production of fuel or sugar.

Brazil's government began scrutinizing ethanol shipments after cabinet chief Dilma Rousseff met with the country's major ethanol producers February 22, the ministry spokeswoman said. It wasn't immediately clear what criteria the government is using to analyze whether to grant, or deny, new export licenses.

The Ministry spokeswoman declined to give figures on how much ethanol would be enough to guarantee Brazilian supply, or whether ethanol producers would be expected to sell local supplies at the mill gate for prices that met government targets. "There is no specific mechanism we are announcing, it's just a tight monitoring to ensure ample domestic supply," the spokeswoman said from Brasilia.

Brazil's sugarcane industry expects domestic ethanol prices to fall in April as about 900 million to 1 billion liters of ethanol flood onto the market, after mills begin processing a southeastern Brazilian sugarcane harvest that starts this month, according to the Sao Paulo-based cane growers union, Unica.

In a phone interview Tuesday, Unica consultant Alfred Szwarc said Brazil's ethanol production in 2006 should reach about 16 billion liters, up 5-7 percent from last year. Brazilian demand for ethanol in 2006 may be 13.5 billion to 14 billion liters, he said, leaving between 2 billion and 2.5 billion liters for export to markets such as the U.S., India and Venezuela. Brazil exported 2.4 billion liters in 2005.

The director of Federal oil regulator ANP, Haroldo Lima, told news agency Globo on Friday that the government may declare anhydrous cane alcohol, Brazil's common ethanol, a federally "monitored fuel."

That could allow the government more control over its pricing and exports, Lima told Globo. The measures come after Brazil's government last month ordered Petrobras and other gasoline mixers in Brazil to reduce the ethanol content in Brazil's common gasoline mixture to 20%, from 25%, on domestic supply concerns.

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