Ethanol producers in Brazil are feeling relief from improving demand, prices with tax incentives and an increase in the amount of fuel mixed with gasoline, according to a unit of Louis Dreyfus Commodities.
“I’m excited about the prospect of demand for ethanol this year,” said CEO Rui Chammas of Biosev in a telephone interview. “The market is reacting to the incentives.”
Sales of hydrated ethanol at gas stations in Brazil rose 32.6% in the first four months of the year, to 5.47 billion liters (1.44 billion gallons), while gasoline sales fell 3.7% after the government reintroduced a tax on fossil fuels that had been discontinued in 2012, showed regulator data.
Consumption has also increased due to a tax exemption in sales in the state of Minas Gerais, as well as the increase in the mandatory blending in the national gasoline, Chammas said. The Biosev is the largest producer of ethanol from Brazil after Raizen Energia.
Most of Brazil’s cars can be fueled with either gasoline or ethanol, and often consumers choose the most cost-effective fuel at the pump.
The country’s ethanol plants suffered from low demand in recent years, hurt by weak demand related to the measures by President Dilma Rousseff like price caps and tax breaks for gasoline in inflation control efforts. Only 36% of the country’s flex cars were fueled with ethanol last year, down from 82% in 2009, according to data from Datagro.
Since 2001, 49 producers were forced to close the doors and 67 others are under bankruptcy protection, according to a report from Unica.
Biosev’s harvest of sugarcane will probably grow in the 2015-2016 season, which began in April, with better weather after years of drought, Chammas said. The company expects to reach between 29 and 32 million tonnes this season, up from 28.3 million in the previous season.