Brazil has long been a supporter of ethanol as a motor fuel, ranking second to the US in both global production and consumption.Brazil’s ethanol market has been driven in large part by relatively inexpensive production from sugarcane (which has a lower cost of production than corn-based ethanol) and an auto fleet that has the highest percentage of ethanol capable (flex fuel) vehicles in the world.
Brazil has also recently become a significant exporter of sugarcane ethanol to the US as corn ethanol comes under increasing margin pressures due to high corn prices.
Against this backdrop, it is surprising to see the Brazil ethanol market under pressure. Even given its ready supply and available fleet, domestic demand is dropping…And even the Brazilian national oil company, Petrobras, is hinting at substantially reduced spending with a re-focus away from ethanol and toward development of recent pre-salt oil fields as noted in a recent Bloomberg Businessweek article, Petrobras Ethanol Pipeline Pullback Raising Fuel Price.
If ethanol is facing headwinds such as these in one of its strongest markets, what does it mean for its global future as a motor fuel? Only time will tell.