26/06/17
Brazilian ethanol flows start slow under EU-Mercosur
London, 17 June (Argus) — Ethanol exports from Brazil to the EU under the
interim Trade Agreement (iTA) with the Mercosur trade bloc, which began on 1
May, have been sluggish so far, as a result of confusion around quota
management, difficulties with export licences and uncertainties about the
tracking of imported ethanol's final application. Brazil, the Mercosur's largest
ethanol producer with a nameplate capacity of more than 77mn t/yr, exported
7,277m³ — approximately 5,780t — of ethanol to EU countries in May, the lowest
volume since March 2025, according to Brazilian trade ministry Mdic data.
Mercosur is a trade bloc including Brazil, Argentina, Uruguay and Paraguay as
permanent members. Increased freight costs as a result of the Iran-US war as
well as lower availability of product at the beginning of the 2026-27 sugarcane
crop, which spans from 1 April 2026-31 March 2027, weighed on exports. But
caution over the EU-Mercosur trade agreement also played a role in diminishing
Brazilian ethanol exports to Europe. Many producers and exporters are struggling
to access the quotas, and others are waiting to see how practical terms of the
deal will unravel. None of the cargoes from Brazil in May have arrived in Europe
under the iTA quota, according to market participants. Legal limit Under the
EU's implementation regulation, import quotas from Mercosur suppliers are
managed under licences and not on a first-come-first-served basis, as some
market participants previously assumed. This assumption created some hesitation,
with a market participant pointing out that if a cargo was delayed it would run
the risk of arriving after the quota had been already allocated, meaning that it
would not benefit from the lower or zero tariffs under the quota and incur the
maximum Most Favoured Nation (MFN) duty of €192/m³ for undenatured ethanol and
€102/m³ for denatured ethanol. Bureaucracy surrounding the licences to benefit
from reduced tariffs is also weighing on exports from Brazil. Brazilian
producers are struggling with the paperwork needed to export with tariff
exemption. Some have even reportedly been denied access, because the Brazilian
government only grants the licence to producers and exporters of sugarcane-based
ethanol from the north or northeast of the country. Brazil's trade ministry Mdic
confirmed to Argus that ethanol from other regions and sources, such as corn,
will face no such restrictions. Up until the end of 2026, only a small amount of
imported ethanol from Mercosur suppliers will be able to profit from the lower
or zero tariffs. This is because the iTA allows for imports of up to 650,000t/yr
of Mercosur-origin ethanol, phased in across five years. In 2026, duty-free
ethanol imports of only 90,000t are permitted for chemical use and only 40,000t
for other purposes, including fuel blending, at an in-quota tariff rate
equalling a third of the standard MFN duty. The quotas for this year could be
quickly met, considering an IMO2 coated medium range tanker can carry up to
40,000t of ethanol, while a standard stainless steel vessel can carry up to
around 18,500t. Smaller chemical tankers frequently carry ethanol too. The EU
imported over 60,500t of undenatured ethanol from the Mercosur region in 2025,
with more than 72pc of this coming from Brazil, according to Eurostat data.
Alcohol misuse Market participants have also voiced uncertainty in relation to
how the European Commission will track which industry the imported ethanol will
ultimately end up in. Several told Argus that they question what will happen if
ethanol imported for the chemical sector ends being used for a different
purpose. Under Annex 2-A of the iTA the EU can subject imports to an End-Use
Procedure , to conduct the relevant customs checks on the imports' declared use,
and that can be applied ethanol imports to ensure their final application. The
EU's Union Customs Code (UCC) outlines that to obtain authorisation for this
procedure an applicant must have a registered office in the EU customs
territory, provide the necessary assurance that the operations using these goods
will be properly implemented and provide a guarantee. If end-use conditions are
then breached under general EU customs law, a customs debt is incurred, and the
importer must pay the difference, plus interest on arrears. Member states set
financial penalties for misdeclaration under national law. By Toby Shay and
Maria Ligia Barros Send comments and request more information at
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