Sao Paulo: Ethanol prices in Brazil, currently below production costs, are not expected to recover until at least July due to most mills being unable to secure financing for storage because of existing debts, according to the Sugar Cane Industry Association (Unica) on Monday.
As per Reuter’s report, Brazil’s government announced in March it would offer around $1 billion in financing for companies to store 5 billion liters to head off a steep fall in prices in the 2009/10 season.
The global financial crisis has severely impacted Brazil’s sugar and ethanol sector. Many companies, desperate for cash, accelerated fuel sales to generate cash flow, which in turn caused prices to plummet.
“Most mills are facing liquidity problems and a lack of credit. They can’t even obtain financing to build stocks, so the government financing won’t resolve the issue of falling prices in the short term—before July,” said Unica’s technical director, Antonio de Padua Rodrigues.
Wealthier milling groups are likely to buy ethanol from weaker companies to build stocks, utilizing all available funds. However, this won’t prevent cash-strapped mills from selling ethanol on the local market, Padua explained during a three-day Ethanol Summit hosted by Unica.
Brazil’s sugar and ethanol sector, comprising about 400 mills, has significantly leveraged its capacity expansion in recent years. However, the global financial crisis dried up credit, leaving mills with no option but to sell their product in the spot market to generate cash.
Mills that request government funds will be required to direct a certain amount of ethanol to sealed storage. This product will only be released for sale after the harvest winds down in late 2009 when ethanol supplies become seasonably tight.
