Ethanol consumption in Brazil should fall in the 2011/12 season as high sugar prices buoy prices of the fuel, making it less competitive than gasoline at filling stations, Datagro analysts said on Monday. Demand for the cane-based fuel has soared since 2003 when automakers launched their first flex-fuel cars which can run on any mixture of gasoline and hydrous ethanol, according to Datagro.
They now account for nearly all sales of new cars. Since cars run further on each liter of gasoline, ethanol loses its cost advantage once its price rises to more than 70 percent of the fossil fuel. "An increase in ethanol prices in 2011/12 should lead to higher consumption of gasoline and lower consumption of hydrous ethanol," Datagro's President Plinio Nastari said.
Although higher gasoline consumption should boost demand for anhydrous ethanol — every liter of gasoline sold in Brazil has 25 percent of this kind of ethanol — this will not totally offset the drop in ethanol demand by flex-fuel cars. Datagro sees anhydrous ethanol consumption at 8.50 billion liters in 2011/12 (April-March), up from 7.75 billion liters in the previous season, while demand for hydrous ethanol should total 14.22 billion liters, down from 15.65 billion liters. In 2009/10, demand for hydrous totaled 15.56 billion liters, and for anhydrous, 6.14 billion liters. The high price of sugar led most of the country's cane mills to favor production of the sweetener over ethanol in 2010/11, keeping supplies tight and prices firm. This trend should increase further in 2011.
The National Petroleum Agency (ANP) earlier February reported a drop in ethanol consumption had already taken place in 2010, but its numbers conflict with those from other market sources.
