Porto Alegre, December 14, 2020 – The Unica’s most recent bimonthly report on the harvest of cane and production of derivatives for Brazil’s Center-South brought two important pieces of information to the ethanol market. The first refers to the indication of internal sales of hydrated ethanol in the range of only 1.66 billion liters in November, which surprised the market in a very negative way, staying 4.80% below the expectation of SAFRAS & Mercado, which expected internal sales around 1.75 billion liters. In fact, the sharp slowdown in demand led to the second highly impacting measure from the negative outlook of the market: the transformation of hydrated into anhydrous ethanol, in the volume of 176.27 million liters. Usually in the off-season, albeit at its beginning, the movement is the opposite, with hydration of anhydrous ethanol. However, as 2020 has been atypical with the COVID-19 crisis and its impact on domestic demand, again depreciated with the measures of social isolation in São Paulo, the market ended up observing this very unusual fact.
This movement of reprocessing hydrated into anhydrous ethanol also reflects a greater share of gasoline in the Otto cycle in domestic demand, but the demand that returns to the market is shifting to gasoline rather than to hydrated ethanol. The saturated and even invalid competitiveness levels of hydrated ethanol in relation to gasoline reinforce this scenario. Another negative externality of this movement tends to be the slow flow of accumulated record stocks, with new downward pressure on prices besides those that already exist due to limited demand at the final buying end. In general terms, the Unica’s report only reinforces other movements that were already known: the deepening of the off-season and a sharp decline in the cane crush and production of derivatives.
Textually, Unica no longer comments on the possibility of crop losses or drought in part of cane-producing regions as it did in its previous editions. In fact, SAFRAS & Mercado had already warned that the precipitation anomaly maps were indicating the start of the rainy off-season in the Center-South, in line with what is expected for this time of the year. Besides, cane fields in São Paulo still had rainfall expected to range from 250 to 300 mm above the average for this period of the year, which is already considered rainy. This assimilation of the reduction of climatic risk in the Center-South is also an important fact for the market, more induced by the lack of indications than the admission that signs of occasional scenarios of crop losses made in September and October were precipitated.