Hydrated ethanol increases disadvantage against sugar in January


        Porto Alegre, February 23, 2021 – In January 2021, the average price ratio between hydrated ethanol in the Brazilian physical market compared to raw sugar prices in New York maintained the predominance of the biofuel disadvantage pattern compared to the commodity seen since March 2020. However, the movement ended up growing, more specifically in January, with more significant bullish patterns observed with sugar in comparison with ethanol. To complete the scenario, movements of devaluation of the real against the dollar ended up being counterproductive relative to the moderate advances of hydrated ethanol. The result was a pattern of negative spread of the biofuel between December 2020 and January 2021, when the price ratio changed from -14.96% to -24.19%.

         Since the beginning of this recent stage of disadvantage, in March 2020, January is the period of sharpest decline in the price of hydrated ethanol against New York sugar, second only to October 2020 when, inside of mills, in cents per pound, hydrated ethanol prices were 23.03% below sugar. Before that, only on two other occasions the disadvantages were above 22%, as was the case in August 2020 (-22.43%) and May 2020 (-22.65%).

       As the expectation for the coming few months is of more significant gains for hydrated ethanol in the physical market, amid a slightly more appreciated exchange rate in Brazil, the expectation is of a slower disadvantage pattern in February, of around 15%. This trend contributes to changes in the position of the driver contract on the New York exchange, which will change from the March/21 to the May/21 contract. These two assets have different oscillation patterns, with March/21 oscillating around 16.00 cents, while May/21 is already at the level of 15.00 cents.

       Analyzing the month of January and looking at each day individually, we can find moments of differentials at -26.87% (on January 18) and at -20.93% (on January 16). This shows that the pattern of strong disadvantage of hydrated ethanol was predominant over the month, without great volatilities. The average monthly value of hydrated ethanol of BRL 2.53, discounting 13.3% of ICMS in São Paulo and BRL 1.309 in PIS/Cofins, and converted into cents per pound, with an average dollar of BRL 5.3624 of the period, was equivalent to 11.06 cents, down 1.72% from the average of 11.25 cents observed for this asset in the immediately previous month, already with freight discounts, elevation and conversion into FOB equivalence.

        Year over year, the January average for hydrated ethanol in cents per pound posted losses of 21.37% from the level of 14.06 cents in January last year. On the average of 2021, the equivalent price of hydrated ethanol inside of mills still fluctuates around 11.06 cents, a value also 21.37% below the average of 14.06 cents accumulated during the same period of the previous year.

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