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Petrobras cut gasoline prices, should pressure ethanol price floor

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Brazil's Petrobras said it was lowering wholesale gasoline prices by 2.3%, the second cut in less than a month and expected to push ethanol lower to maintain its recently regained competitiveness at the pump.

The average gasoline price for the consumer over June 4-10 was Real 3.533/liter ($1.08/liter) in the Southeast region, according to latest ANP data. If the cut was completely passed on at the pump, the retail price should fall 0.9%, or Real 0.03/liter.

Since October, the company's pricing policy has been for monthly adjustments according to global market prices and the competitiveness of its product in Brazil.

The latest move was the fourth cut in gasoline prices this year, having decreased prices in January, February and late May. It increased prices in April.

Petrobras said it will start reviewing fuel prices in periods of less than 30 days due to the increased volatility in international oil prices and foreign currency.


With the start of the 2017-18 sugarcane season in Center-South Brazil, ethanol prices have been falling.

ANP data for the June 4-10 period showed the price of hydrous ethanol at pump in the Southeast averaged 68% of gasoline, the lowest since late September.

Hydrous fuel ethanol is used in Brazil as a stand-alone biofuel (E100) by flex-fuel vehicles. To be competitive, it has to be below 70% of the price of gasoline.

However, despite the recent price improvement, demand at the pump has been slow with consumers still favoring gasoline, market sources said.

Market participants expected the latest cut by Petrobras to force ethanol producers to further decrease ex-mill prices which could, in turn, attract consumers to switch back to the biofuel.

From January to April, total hydrous demand reached 3.75 billion liters, down 19% year on year, ANP data showed.

Hydrous demand has been lower due to tight supply since last year and consequently higher domestic prices, which curb demand at pumps. Since last year, producers have directed more cane to produce sugar rather than hydrous ethanol, due to higher prices for sugar.

For May, demand was expected to have reached roughly 1.1 billion liters as hydrous, according to estimates from Kingsman, the agricultural analysis unit at S&P Global Platts.

Platts on Wednesday assessed domestic hydrous ethanol at Real 1,680/cu m (Real 1.73/liter), ex-mill Ribeirao Preto.

Compared with a month ago, hydrous prices have declined Real 50/cu m, or 3%. Since the start of the season on April 1 prices are down 6%.

"If we compare the average of hydrous ex-mill prices this season versus last year we can see that prices are much higher. So, there is still space for prices to fall further," said an analyst at Kingsman.

Platts assessments showed the average price of hydrous from the start of the crop April 1 to June 15 was Real 1,760/cu m, compared with Real 1,629/cu m in the same period last year.

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