In Brazil, there is a growing surplus of ethanol due to drivers opting for more affordable gasoline, which is impacting the earnings of the country’s major sugarcane producers. This situation has prompted these producers to shift their focus towards increasing sugar production according to finance.yahoo.
During the second quarter, ethanol stockpiles at Brazil’s largest producer, Raizen SA, more than doubled compared to the previous three months. Raizen curtailed ethanol sales in the hopes of achieving better pricing, which led to increased inventories. Consequently, the company is responding by ramping up sugar production as much as possible.
Raizen’s biofuel business faced a decline during the second quarter, affecting its financial results and contributing to an earnings miss. Other industry players, such as Sao Martinho SA and Jalles Machado SA, experienced a similar trend. Sales of 100% ethanol fuel fell by 9% in July, according to industry group Unica, and Jalles Machado estimates that total stockpiles in Brazil increased by 5% compared to the previous year.
Recent dry weather conditions may allow producers to allocate a larger portion of cane juice for sugar production, potentially boosting sugar supplies. This comes at a time when the industry is already processing more cane during the current season. Raizen anticipates processing between 80 to 83 million tons of cane, a significant increase from the 74 million tons processed the previous year.
Although biofuels play a substantial role in Brazil’s economy, the demand for ethanol has weakened due to gasoline becoming a more cost-effective option. Most vehicles in the country can run on a mix of gasoline and ethanol, and lower gasoline prices have reduced consumer interest in filling up ethanol.
The sugar industry is now pinning its hopes on a shift in direction following a fuel price increase by oil giant Petroleo Brasileiro SA. These price hikes announced recently, are seen as a positive move by Raizen’s CEO Ricardo Mussa to align local fuel prices with international markets, alleviating concerns that the state-controlled company might freeze rates to control inflation.
