Brazilian hydrous ethanol consumption declined by 3.2pc in January to 1.21bn liters (245,833 b/d), compared to 1.25bn l in the same period of 2014, according to the oil regulator ANP.
During the same period, gasoline consumption fell by nearly 14pc to 3.32bn l to its lowest level for the month of January since 2012.
Despite the decline, hydrous ethanol continued to gain market share over gasoline, reaching nearly 27pc of the light vehicle fuel market compared to 24.4pc in January 2015.
The drop in gasoline and ethanol consumption comes amid a deepening economic recession. After contracting by an estimated 3.9pc in 2015, economists see Brazil´s GDP shrinking by another 4pc this year.
The stronger-than-expected hydrous ethanol consumption resulted in a decline in ethanol stocks during the current inter-harvest period, which typically runs between January and March.
Local sugar and ethanol consultancy Datagro sees ethanol stocks falling to roughly 300mn l at the end of March, down from 1.2bn l on 31 March 2015. Hydrous ethanol stocks stood at 2.9bn l on 31 December 2015, compared to 4.8bn l on 31 December 2014.
Datagro believes consumers continue to opt for ethanol because of a decline in disposable income. Hydrous ethanol costs less per liter at the pump than gasoline.
Nonetheless, the ANP indicates that it is currently more cost effective for motorists to use gasoline rather than hydrous ethanol in every state of Brazil. To be competitive, the hydrous ethanol price must be less than 70pc of the gasoline price. The differential reflects the greater vehicle efficiency of gasoline on a per-liter basis.
Datagro expects gasoline consumption to continue to decline this year and hydrous ethanol consumption to remain stable, in part because Brazilian state-controlled oil company Petrobras will continue to sell gasoline and diesel at above international prices in an effort to boost cash flow.
Hydrous ethanol consumption is only likely to grow if the government opts to raise the CIDE gasoline tax. But with annual inflation trending at above 10pc, the government has been reluctant to raise the tax.
