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Americas Ethanol

Brazilian ethanol price hikes see exports to the US stumble

Overseas demand for Brazilian ethanol exports has been on the rise for the 2015/16 harvesting season, now sitting at 786,024m3 so far for this harvest year, up 30% YoY. This has been mainly driven by the sharp weakening in the Brazilian Real against the US Dollar, leaving Brazilian exports extremely attractive to the foreign market. Recent hikes in Brazilian gasoline prices have since seen Brazilian ethanol prices soaring, with gains of around 15% MoM. Rumours are lingering that the Brazilian government may hike gasoline taxes by 20%-30% in order to bolster government tax coffers after an alternative plan to resurrect a retail transaction tax generated a popular outcry. This has left Brazilian ethanol producers looking for higher fourth quarter sale prices to offset the risk that higher domestic prices could leave them out of pocket on pre-booked export sales.

Brazilian ethanol exports have mainly been destined for the US, accounting for 51.32% so far this harvesting season, with total exports so far now sitting at 403,361m3. The spread between advanced ethanol D5 RINs and renewable fuel D6 RINs is a major driver in determining US demand for Brazilian product. The D5/D6 spread was at its highest point this year during the summer months, with imports of Brazilian ethanol hitting annual peaks in August. The spread then started falling from these highs, although has been recovering since the beginning of September to now sit at 17.75c/gal. Despite this, higher Brazilian ethanol prices have kept arbitrage opportunities for Brazilian ethanol into the US closed for the time being.

In the Asian market, South Korea remains the main destination for Brazilian ethanol exports, as well as China, Japan, and India. Exports to South Korea so far this harvest season are sitting at 169,215m3, representing 21.53% of total Brazilian exports. These exports sat at one year highs in July of 88,000m3, and have fallen in August and September to sit at 31,000m3 and 35,500m3 respectively. Smaller shipments were sent to Nigeria from Brazil in August of 13,500m3. 12,700m3 of ethanol was shipped to a tight European market in September, the largest monthly volume recorded shipped to the EU in the past two years.

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