Brazil’s minister of Mines and Energy, Edson Lobão, explained that neither the Brazilian government nor its state-run oil company, Petrobras, is responsible for the high price of Brazil’s sugarcane-based ethanol.
“The government has not raised prices of anything [ethanol or gasoline] for over two years. The last time Petrobras made an adjustment was over two years ago when it lowered prices,” declared the minister. “The problem is that the market freely sets its own prices.”
At the moment, the price of Brazil’s ethanol at the pump has reached a historical high and because of the so-called “energy ratio,” is simply uneconomical throughout the country.
Ethanol provides 30% less energy (or, to put it another way, 30% less mileage) than gasoline, so it has to cost 30% less than gasoline to be economical.
In the state of São Paulo, ethanol is over 83% the price of gasoline (up to 70% of the price of gasoline ethanol is economical).
Over the last month, the price of ethanol at the pump has risen 12.1%. However, because of the size of Brazil and transportation costs, the price of ethanol can vary as much as 1 real (US$ 0.62) per liter at the pump. Gasoline prices can also vary so that at the moment there are places where ethanol prices are only just above 70% the price of gasoline.
The average nationwide price of a liter of ethanol for the week of February 27 to March 5, was 1.95 reais, and a week later it had risen to 2.19 reais. But the average price is misleading due to the huge variation. For example, in Paraíba, it costs 1.89 reais per liter (a little over 70% the cost of gasoline), while in Brasília it costs 2.89 reais, almost the same as gasoline.
The Brazilian sugarcane harvest has begun and although it is expected that production this year will be less than it was in 2010, the price of ethanol should begin to fall soon. According to mill owners and distributors, the price of ethanol will be competitive again only in May.
Spokespersons for the Sugarcane Industrial Union (Única), have announced that total 2011 production of ethanol will reach 17.2 billion liters, that is down from over 23 billion liters in 2010.
“Ethanol will be produced and it has to be sold. The price at the pump must come down so the consumer will buy it again,” declared Antonio de Padua Rodrigues, a director at Única.
Meanwhile, the president of Única, Marcos Jank, was also positive about a drop in ethanol prices. “The price will come down, probably within 45 days,” said Jank. “And it must come down to where it is once again competitive. It should be less than 70% the price of gasoline in May when supply will catch up with demand. That is when people will once again fill up with ethanol.”
However, the executive vice president of the distributor’s union (Sindicato Nacional das Empresas Distribuidoras de Combustíveis e de Lubrificantes – Sindicom), Alísio Vaz, says that as this year’s supply of ethanol will be less than in the past, the result will be ethanol prices that are competitive for a shorter period of time in 2011. In other words, supply will barely catch up with demand – and only for a short time.
Única has also expressed concern with future supply problems (in the face of sharply rising demand as Brazil sells more and more fuel-flex cars that can run on gasoline and ethanol). Única, which represents 60% of the ethanol/sugar mills in the country, points out that the production of ethanol has become less attractive for the mills because their ethanol must compete directly with gasoline that has its price set by the government at artificially low levels.
Jank says mill owners are investing in the production of sugar rather than ethanol. At the moment, sugar prices are at historical highs. Jank adds that Única is negotiating a pact with the government for funding to expand sugarcane production and create credit lines for more investment. He says that otherwise lower ethanol production between now and 2020 is almost certain.
“Investments in our sector dried up after the 2008-2009 international financial crisis. We are currently talking to the government about a broad-based, large-scale plan to reverse the tendency toward a reduction in ethanol use,” declared Jank.