Brazilian ethanol producers willing to wash out anhydrous contracts: sources


Brazilian mills are willing to wash out, or cancel, long-term contracts for anhydrous ethanol to favor hydrous production, sources said Tuesday.

Hydrous ethanol sales from Center-South mills surged in October to 1.49 billion liters, up 21.66% year on year, while anhydrous dropped 4.66% year on year to 794 million liters.

"We were not seeing any anhydrous being hydrated right now; however, as from the second half of December many mills might look for this option to increase the cash flows," an ethanol producer said.

The National Agency of Petroleum, or ANP, has said since 2011 that Rule 67 obliges distributors to settle anhydrous ethanol contracts with mills equivalent to 90% of all volume needed to blend in the gasoline during the next 12 months.

The volume is calculated according to gasoline sales from the prior year and the mandatory blend of 27% of anhydrous ethanol in gasoline.

Ethanol producers are not obliged to sell anhydrous ethanol in long-term contracts.

The anhydrous price is calculated as a premium over hydrous ethanol. The average premium for long-term contracts is 12% for the Center-South 2017-18 crop season that started April 1.

Some market participants said the contract wash-out could favor distributors, which were paying a 12% premium for the long-term contracts but could buy in the spot market at lower premiums.

"It is possible to buy anhydrous in the spot market paying 9% premium over hydrous, or 3% less than the long-term values," an ethanol trader from a distributor said.

In the meantime, some distributors are looking at the wash-out possibilities with caution as anhydrous demand might increase in the Center-South intercrop season from December to March.

"The anhydrous demand is expected to increase during the intercrop season and we can't take the risk of [not having] ethanol product to blend in the gasoline," a Sindicom member said.

Sindicom is the country's largest distributor association.

S&P Global Platts assessed anhydrous ethanol ex-mill Ribeirao Preto at Real 2,000/cu m on Monday, a premium of 9.29% over hydrous ethanol after excluding the 12% tax charged on hydrous ethanol.


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