Engineering News

Midwest Floods Spur Interest In Brazilian Ethanol
Wednesday, June 18, 2008

Demand for Brazilian sugar and ethanol are rising week over week, traders said.

Discounts for Brazilian raw sugar are on the downswing as Russia and Middle East destination refineries compete for Brazilian sugar, thus increasing prices, said Antonio Augusto Duva, soft commodities manager of BNP Paribas bank.

Discounts are the price differences negotiated between New York sugar futures and the spot sugar market in Brazil. Brazil raw sugar tends to price much lower than New York futures.

On the ethanol side, floods in the U.S. and the high cost of corn ethanol has blenders and traders, including ethanol operations at banks like Morgan Stanley Capital Partners, buying up Brazilian ethanol these days.

Traders at a French multinational sugar and ethanol exporter said that demand has risen "to another level this week when it comes to ethanol."

"Prices for Brazilian ethanol at the ports have risen by 10% because of demand. You have all these U.S. blenders who have mandates to fill, and corn ethanol is costing them too much money," a French trader said.

Duva from BNP Paribas said that a gallon of corn ethanol was going for around $2.90 per gallon compared to a gallon of Brazilian sugarcane ethanol at $1.87.

"You can throw on that 54-cent tax on ethanol and we still come out cheaper," Duva said. The U.S. charges a $0.54 import duty on Brazilian ethanol.

The trader from the Sao Paulo company said that new business for immediate delivery was complicated because storage tanks at the main ethanol export terminals in the south, southeast and northeast are full to the rims, most of it all heading for the Caribbean or to the U.S.

"Physical demand for ethanol has heated up this week. Everyone is calling for prices and shipping details," he said.

Floods in the U.S. midwest have complicated transportation matters for ethanol producers. That also had blenders rushing to inquire about Brazilian ethanol this week to make up for what they might not get from the midwest.

With ethanol paying around $0.03 more per pound equivalent in sugar, ethanol is where the action is this week in Brazil. Actually, ethanol has been where the action is in Brazil's sugarcane business for some time, with less and less sugar being made from the crop.

However, a record 500 million metric ton sugarcane crop is sure to pump a lot of excess sugar into the market. Out of all the food commodities on the rise, sugar still remains low and volatile because of the fundamentals of supply and demand. There's still a lot of sugar to be had in world markets and Brazil is by and large the number one supplier.

In the futures market Tuesday, "black box" investment funds who aren't concerned with the fundamentals of supply and demand sent July sugar futures up 54 points to $11.60 per pound on the ICE Futures U.S. exchange.

In Brazil, speculators and traders bought October sugar futures in New York Tuesday, helping to push prices up 46 points to $12.86 per pound on the ICE.

"Specs are buying and farmers are selling futures as the physical market for sugar is improving. The market is getting much better, both in the physical and in the futures," said a broker at Hencorp Commcor.

A broker at Terra Futuros said that the physical market was solid once again, with the usual market buyers.

Another said that a U.S. trading house put in an order for 5 million liters of ethanol for November delivery.

Brazil is expected to export around 4.5 billion liters, up from around 3.5 billion liters in 2007, according to industry estimates.

Source: Dow Jones newswires

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