Brazil to cut ethanol mix in gasoline by 20% due to prices

Rio de Janeiro (Platts)--22Feb2006

Brazil plans to drop the amount of ethanol it requires mixed into the 
country's gasoline supply to 20%, from 25%, after Brazilian ethanol-makers
refused to cap their prices despite a January agreement with the government to
do so, Brazil's Agriculture Ministry said Tuesday. 
     According to local press reports, Energy Minister Silas Rondeau said the 
measure would be approved by Thursday. The Agriculture Ministry didn't say how
long the change, which would affect Brazil's common 'C' grade of gasoline,
would last. However, most analysts expect it would continue at least through
April, when the first of two annual crops of sugarcane in Brazil is partially
turned into ethanol, boosting local supply. 
     The measure would reduce Brazilian consumption of ethanol by 100-mil
liters/month, the ministry said. About 500-mil liters/month are being added to
the country's gasoline supply, and that figure should fall to 400-mil, the 
ministry estimated.
     The government, which since the 1970s global oil booms has provided
subsidies backing Brazil's ethanol makers, is intervening after prices for
ethanol in Brazil rose between sugarcane crop seasons to record levels. 
     According to a survey this month by federal oil regulator ANP, ethanol 
prices at Brazil's southeastern service stations, in the most industrialized 
part of the country, rose 3 percent in February from January despite
agreements between the government and ethanol producers. 
     The average price for ethanol in the region's service stations in
February was Real$1.51/liter (71 cents/liter), up 25 percent from the same
month in 2005. Gasoline prices were an average Real$2.36/liter ($1.11/liter)
per liter, up 8.6 percent from February 2005, ANP said. 
     According to the January agreement between the government and ethanol
producers, ethanol was to be capped at Real$1.05/liter (50 cts/liter). 
     While about half of new consumer vehicle purchases in Brazil last year 
were for flex-fuel cars capable of running on gasoline or ethanol, 
the traditional cost benefits of filling up with ethanol have been reduced or 
eliminated in many parts of Brazil because of the price surge for the product,
analysts said.
     Folha de Sao Paulo newspaper online cited Energy Minister Rondeau as 
saying Tuesday that the final price of gasoline in Brazil should rise by about
Real$0.02/liter (0.01 ct/liter) due to the cut in ethanol content. 
     A temporary reduction in Brazilian consumption of ethanol could free up 
more ethanol for export. Brazil has been shipping ethanol at a price of about 
Real$1.15 ($0.54) per liter. However, fear of a short supply of ethanol, which
has helped push prices up in Brazil, could also hurt Brazil's push to find
more long-term buyers for Brazilian ethanol overseas.
     Exporters, including oil firm Petrobras, have been seeking large
increases in Brazilian ethanol shipments to countries including Japan.
     Brazil's first sugarcane crop of the year should supply the domestic 
market with as much as 900-mil liters of ethanol by the end of April,
according to estimates by Sao Paulo's cane growers association, Unica.
--Josh Schneyer, newsdesk@platts.com

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