Porto Alegre, November 23, 2020 – Strong recovery in demand in Brazil’s Center-South and the approach of the off-season already begin the phase of consumption of stocks in the region. The Northeast goes the other way round, with the beginning of the local crop creating a scenario of increase in local stocks. Higher demand for gasoline in the Otto cycle slows down the reduction in stocks. The physical ethanol market is still in a phase of strong storage of hydrated ethanol and anhydrous ethanol available for sale in the Center-South. On the one hand, the volume of such stocks is still high, reaching the maximum levels of the season. This year to date, the storage rate shows an increase of 5% for hydrated ethanol in the Center-South, while compared to the historical 5-year average, the volume is 28% higher than that observed in the period. However, such volumes require much attention. First, because the consumption rate at the end of October was already higher than the production rate, which led to a reduction in stocks in the margin from the period immediately before a 3.42% decline.
The recovery in domestic demand seen during the same month is occurring at the same time that production has been falling seasonally due to the end of the current 2020/21 crop in the region. From the first to the second half of October, hydrated ethanol production in the Center-South dropped 32%, from 1.29 to 0.88 billion liters. Domestic demand in the region, between September and October, increased by 7.90%, from 1.73 to 1.86 billion liters. In this context, the stocks of hydrated ethanol available for sale in the region fell by 3.42%, from 7.35 to 7.10 billion liters. The seasonality of the off-season start has been combined with the recovery in demand, nothing more than that.
The future price curve for hydrated ethanol in the Ribeirão Preto region is still strongly negative for the next six months, which means that, even with the crop almost finished, the demand is still below the pre-pandemic potential, and the future price curve of hydrated ethanol reflects that. It is also a complicating fact that the share of hydrated ethanol in the Otto cycle is decreasing, albeit at marginal rates, even so it is still a vector that limits the growth of price perspectives. The risk of a second wave of contagion from COVID-19 together with pressure for storage at the end of the off-season are additional risk factors that are caused by the high stocks of the biofuel.
Taking into account the capacity to meet the stocks in the country, the most recent estimate is that, by the end of October, stocks must be able to meet 419.01% of the national demand, with the estimated consumption data, since the National Agency of Petroleum, Natural Gas and Biofuels (ANP) has not yet released the national data for October, only for September. In September, SAFRAS & Mercado estimated the capacity to meet the demand for stocks at 423.30% at the beginning of the period, up 16.49% from the effective capacity of 406.81% in the period. This current level of capacity to meet stocks, observed in September at 406.81%, represents an increase of 66.81% over the same period of the previous year, as the capacity to meet the demand for stocks fluctuated by 339.99%. In the margin, we have a growth of 34.04% compared to the capacity to meet 372.77% of the country’s domestic demand in the immediately previous month. Against the year average, we have an advantage of 170.34% in September compared to the average capacity of 236.47% in 2020.