Sugar may need to drop further to spur millers in Brazil, the world’s largest producer, to make more ethanol at the expense of the sweetener when the 2013-14 season starts there in April, according to Macquarie Group Ltd.
Futures traded on ICE Futures U.S. in New York, down 7.6 percent this year, may need to average 17 cents to 18 cents a pound when sugar cane processing starts in the center south, Brazil’s main growing region, Kona Haque, an analyst at the bank in London, wrote in a report e-mailed today. Sugar for May delivery was down 1 percent at 18.02 cents a pound.
Millers in Brazil use raw material sugar cane to make both the sweetener and the biofuel. The price of hydrous ethanol, the 100 percent biofuel used in Brazil’s flex-fuel cars, climbed above that of sugar on Feb. 7 for the first time since April 2011, according to Kingsman SA, owned by McGraw-Hill Cos. That spurred speculation millers would make more of the biofuel.
Brazil’s plans to cut the amount of ethanol that must be blended into gasoline may do little to lower the price of fuel at the pump, an analyst said.
The country will cut its ethanol blending rate to 20 percent by Oct. 1, from 25 percent now. The measure is aimed at ensuring there’s an adequate supply of the renewable fuel, which has increased 27 percent in price since June, Minister of Mines and Energy Edison Lobao said in a statement.
The plan won’t cut ethanol consumption enough to significantly drive down prices because bad weather is reducing sugar-cane production and the industry’s investment in new mills and plantations may not meet demand, said Salim Morsy, an analyst for Bloomberg New Energy Finance in New York.
Currently the ethanol content is 25% but President Dilma Rousseff is expected to announce a reduction to possibly 18% or 20%, sometime the next month.
“The effect of ethanol prices has been very negative for inflation and inflation expectations”, a government source was quoted. The decision had been long expected since it could help to tame inflationary pressures.
Fuels have a 2.5% participation in Brazil’s Expanded National Consumer Prices index, IPCA.