Brazil´s ethanol industry sees a rebound ahead despite a steep decline in hydrous ethanol consumption last month.
Hydrous ethanol consumption plummeted by 22.6pc in April to 1.16bn (243,203 b/d), compared to 1.50bn l in the same period of 2015, as higher prices tilted consumers toward gasoline, according to the oil regulator ANP.
Gasoline consumption increased by 3.5pc to 3.57bn l, compared to 3.45bn l in April 2015.
In the first four months of the year, hydrous ethanol consumption fell by 15pc over the same four-month period last year, while gasoline consumption rose by nearly 2pc.
According to the ANP, it was more cost-effective for motorists to use gasoline rather than hydrous ethanol across Brazil during most of April, but as more ethanol hit the market at the end of the month, ethanol prices started to ease in ethanol-producing states, such as Sao Paulo. To be competitive, the hydrous ethanol price must be less than 70pc of the gasoline price.
Hydrous ethanol consumption is expected to rebound in May, since prices have already started to decline as more mills begin processing their 2016/17 sugar cane crop.
The trend could accelerate if Brazil's new interim government increases a domestic gasoline tax as part of an economic recovery package.
Management changes at Brazilian state-controlled company Petrobras could also buoy the ethanol sector. Pedro Parente, former chief executive of agribusiness giant Bunge's Brazilian operations, was recently named to replace Aldemir Bendine as head of Petrobras.
Parente served as energy minister during Brazil's 2001 power rationing.
Local sugar and ethanol consultancy Archer believes that Parente will push for a more transparent fuel pricing policy that would stimulate new ethanol investment.
During much of Parente's tenure at Bunge, Petrobras subsidized gasoline prices, which reduced the competitiveness of hydrous ethanol at the pump.
Bunge announced a plan to sell its sugar and ethanol business in Brazil in October 2013, amid losses that stepped in part from the gasoline subsidies. Petrobras is also seeking to sell its minority stakes in the biofuels segment.
Parente also served as a board director of Brazil's sugar and ethanol association Unica in 2012-14. He is scheduled to take the helm of Petrobras on 31 May.
Archer estimates that Brazil needs to expand cane output by 20pc over the next five years to meet domestic demand for ethanol.
Unica expects the center-south region to produce 27.5bn-28.7bn l of ethanol in the 2016/17 season, in line with the record output of 28.23bn l in the 2015/16 crop.
