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South Central 2015/16 harvest should reach 590m tonnes of process cane, priority on ethanol production

The Brazilian Sugarcane Industry Association (UNICA), together with other producer syndicates and associations and Brazil's Cane Technology Center (CTC), has announced a projection for the 2015/2016 South Central sugarcane harvest of 590 million tonnes. This would represent an increase of 18.66 million tonnes from the 571.34 million tonnes processed in 2014/2015.

The higher year-on-year estimate stems largely from expectations for greater agricultural productivity in the 2015/2016 season because of improved weather conditions that have been observed up to now.

Of all the sugarcane to be crushed in 2015/2016, UNICA estimates that 58.1% will go toward ethanol production, an increase of 1.12 percentage points compared to 2014/2015 (56.98%).

With this, sugar production in the current season is expected to be 31.8 million tonnes, or in line with the 31.99 million tonnes produced last season. As a result, sugar exports by South Central producers are expected to be around the same level as in 2014/2015 (22.18 million tonnes).

This highly ethanol-oriented production mix stems from: the need for cash flow on the part of producing units facing financial difficulties; the drop in global sugar prices; and changes that have occurred in Brazil's domestic fuel ethanol market.

UNICA says that among changes in Brazil's domestic market, issues worth noting are: the partial reinstatement of the so-called CIDE tax on petrol; the adjustment in the PIS/Cofins tax applied to petrol; the higher anhydrous ethanol blend rate in petrol; and the greater price competitiveness enjoyed by hydrous ethanol resulting from changes in the ICMS tax rates imposed on hydrous ethanol and petrol in several states. In this context, one change that stands out is the reduction in the ICMS rate on hydrous ethanol in Minas Gerais state from 19% to 14%, along with an increase from 27% to 29% in the ICMS rate applied to 'gasoline C' (petrol blended with anhydrous ethanol).

These measures have already boosted ethanol demand and support the expectation for increased ethanol production in 2015/2016.

The statistics compiled by UNICA are based on a survey conducted jointly with producing units and show that, in April, the volume of hydrous ethanol sold by mills and distilleries in the South Central region rose by 49.51% compared to the same period in 2014/2015.

Similarly, statistics published by the Oil, Gas and Biofuels Agency (ANP) indicate, in March 2015, a 50.93% increase in distributors' hydrous ethanol sales.

'Forward indices for international sugar prices and the ethanol price potential in Brazil's domestic market still indicate a favourable return for the biofuel,' says UNICA technical director Antonio de Padua Rodrigues. 'For this picture to change, a significant and unlikely drop in the price of ethanol, or, by the same token, a rise in real-denominated sugar prices would be necessary.'

In this context, ethanol production this season is expected to be 27.28 billion litres, an increase of 4.33% compared to the 26.15 billion litres produced in 2014/2015. That production is expected to break down to 10.95 billion litres of anhydrous ethanol (a year-on-year increase of 1.78%) and 16.33 billion litres of hydrous ethanol (a year-on-year increase of 6.10%).

The increased ethanol production and the expected drop in exports – an estimated to total 1 billion litres in the current season – should boost ethanol supply in Brazil's domestic market and reduce Brazil's reliance on ethanol imports.

'It appears counter-intuitive, but the current situation should stimulate an increase in the supply of ethanol during a period of intense crisis in the producing sector,' comments UNICA CEO Elizabeth Farina. According to Farina, it has to do with a momentary confluence of factors that is not expected to be repeated in the coming years if the crisis being experienced by the industry is not reversed.

Farina views as positive the measures that were taken by the federal government at the start of this year, but the executive thinks that it is premature to talk about a return of investments and a reversal in the trend of producing units closing their doors.

'The measures only partially re-established the differentiation in the tax rates on ethanol and petrol. In addition, we still need greater assurances regarding the stability and predictability of the institutional and regulatory environment in the fuel sector. To resume growth, the sector needs to return to achieving positive returns in the short term. Without this, there is no way to make investments in capacity,' Farina adds.

SOURCE: UNICA





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