Ethanol Sales Soar in Brazil, and Russia’s Ukraine Attack May Further Trend

(Bloomberg) -- Ethanol sales are soaring in Brazil as drivers turn to biofuel, a trend that may be strengthened by Russia’s invasion of Ukraine as the conflict is likely to drive gasoline prices higher. 

Hydrous ethanol sales by mills in the Center-South region of Brazil rose 22% in the first half of February compared with the same period a month earlier, according to figures from an industry group released Thursday. That’s up significantly from January, when sales were at a 2017 low.

The recovery means ethanol is becoming more competitive with gasoline at fuel stations in Brazil’s main consumer regions, according to Antonio de Padua Rodrigues, technical director at Unica. Most cars in Brazil can run solely on ethanol or on a blend of the biofuel and gasoline. Drivers usually choose only ethanol if its price is 70% below gasoline’s.

Meanwhile, ethanol is likely to become even more attractive. Oil prices are soaring with Brent crude futures surging above $105 a barrel for the first time since 2014 and skyrocketing energy prices are driving inflation and hampering economic growth globally. Higher oil prices coupled with a weakening Brazilian real may lead state-owned Petrobras to raise domestic gasoline prices.

Inventories of ethanol were set to reach the highest level ever by the end of season, but the increase in consumption means that likely won’t occur, according to Bruno Lima, head of sugar and ethanol for StoneX in Campinas, Sao Paulo. Even so, stockpiles will be historically high, which may lead Brazilian mills to use more cane to produce sugar, as opposed to ethanol, in the crushing season that starts next month. 

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