August 2, 2018 / 4:12 PM / 4 months ago

Brazil mills put premium on ethanol output, idle some sugar units

ARAÇATUBA, Brazil, Aug 2 (Reuters) - Brazilian cane mills will continue to prioritize ethanol production over sugar output well into the next crop season as high oil prices boost demand for the biofuel, millers and consultants said.

Even with sky-high ethanol stocks, due to a quick pace of harvesting of the current crop under dry conditions in Brazil’s center-south, mills and plantation owners said in interviews this week that biofuel provided better returns than sugar.

In some cases millers even said they were idling their sugar installations, to help save scarce cane to produce the fuel.

Luís Antonio Arakaki, who owns a sugar and ethanol mill in Fernandópolis, Sao Paulo state, said he had not used its sugar plant yet during the current crop and did not plan to.

“We are only making ethanol. We had sold forward some sugar, but decided to buy it back and cancel production,” Arakaki said.

He added that he had earned money on the transaction, since sugar prices fell between signing the contract and liquidating it.

Brazil’s center-south is harvesting a smaller crop this year due to aging cane fields and a harsh drought. That has added to pressure to optimize operations, as mills look for the best options in terms of revenue.

Grupo Farias, a company under court protection against creditors, owns seven mills in several Brazilian states, but is currently using only four, said director Fernando Perri. Among those idled are two sugar plants.

“We are taking cane from the mills that are not operating and transporting it to the ethanol plants,” said Perri.

Grupo Farias has capacity to process 7.5 million tonnes of cane per year but will crush only 5 million tonnes this year.

Perri said revenues from ethanol were currently about 130 reais ($34.59) per hectare while sugar would yield about 100 reais.

The focus on fuel, and quick harvest pace, have resulted in ethanol stocks that are currently 2.5 billion liters higher than in the same period last year, according to estimates from Sao Paulo-based Bioagência, a leading ethanol trader.

That has put downward pressure on prices, but ethanol still pays better than sugar, millers said.

Bioagência’s Tarcilo Rodrigues said better capitalized mills were stockpiling to sell after the crop, beginning in November when prices are expected to rise. Others, pressed by bill payments, sell quickly.

“Some make two liters and sell the two. Others make two, sell one and stock one. Others stock it all,” he said.

$1 = 3.7579 reais Reporting by Marcelo Teixeira Editing by Tom Brown

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