It looks like COSAN (CZZ) is now finding it profitable to export their ethanol manufactured in Brazil.
EKS
04:05 PM 06/25/08
DJ Ethanol Dominates Brazil Sugar Market This Week
SAO PAULO (Dow Jones)--Ethanol is the talk of the town in Brazil's sugarcane business market this week, with export prices continuing to rise on U.S. demand, brokers said.
A few weeks ago, one could buy Brazilian anhydrous ethanol, a gasoline mixture, for around $480 per 1,000 liters. On Wednesday, those prices were averaging around $550 per 1,000 liters, "with many traders and end-users willing to pay even more," said a broker at Terra Futuros.
On Wednesday, Brazil's largest ethanol company, Cosan (CZZ), together with NovAmerica, Grupo Guarani and Alcoeste, announced a deal with Swedish ethanol company SEKAB, to import 115 million liters between June and March 2009. No value was put on the contract because the price of the ethanol will vary from month to month.
"A couple of weeks ago, everyone was calling for price references, but now they are calling to close orders," said Tarcilo Rodrigues, director of Bioagencia, an ethanol brokerage firm.
Rodrigues said that the biggest buyers were trading companies like Morgan Stanley Capital Partners, Valero (VLO), Royal Dutch Shell (RDSA) unit Shell Oil U.S. and Chevron (CVX).
"The list is long and getting longer all the time," Rodrigues said.
High corn ethanol prices have put corn ethanol producers at break-even profit margins, or worse. Recent flooding in the mid-west has made it impossible for ethanol to be shipped out of the region by truck to the coastal U.S.
With heated export demand, ethanol remains a winner when it comes to deciding whether to produce sugar or ethanol at the mills as the harvest keeps coming in this week.
Sugar prices were 11.48 cents per pound for the July contract on the ICE Futures U.S. exchange, still far from the 14.50 to 15 cents per pound parity between sugar and ethanol, according to Archer Consulting. At those prices, sugar, too, becomes profitable for many mills who are facing heavy debt burdens due to big expansion moves in 2006 and 2007 followed by falling sugar prices.
The sugar market has picked up these days, too, however. Demand is back from Russia and the Middle East, and raw sugar prices are now trading at premiums instead of discounts.
Freight costs also fell, making it easier for importers to pay for the merchant marine vessels to make the trans-Atlantic shipments to Black Sea and Middle Eastern ports.
"One of the reasons freight costs have fallen is because Argentina's ports are basically closed, so there are more vessels available. That's helped attract buyers, too," said Guilherme Correa, a trader at sugar exporter Coimex.
Correa said premiums for September sugar deliveries were 10 points over the July raw sugar contract on the ICE. A few weeks ago, sugar was priced as steep discounts of nearly 100 points.
According to a Sao Paulo broker, export premiums out of Santos for July and August shipments were 10 over the July raw sugar contract on the ICE and 15 over July for September shipments of Brazilian raw sugar, or VHP.
Arnaldo Correia, a consultant at Archer Consulting, told a group of sugar brokers at the Brazil Commodities & Futures Exchange Agrobusiness Scenarios meeting in Sao Paulo on Tuesday that the firm sees sugar futures hitting 17 cents per pound this year for 2009 contracts, making it easier for sugar milling companies in Brazil to invest in expansion.
"When you look at the prices today, it's only a 20% increase, and that's not that extraordinary," he said.
Carlos Mello, commercial director for Cosan, said 17 cents is doable; maybe not this year, but certainly next.
"Seventeen is the magic number for sugarcane companies to start investing. By 2009-2010, the world sugar market will enter into a deficit, so our logic is that prices will hit 17 cents by next year," Mello said.
Brazil is the world's leading producer and exporter of sugarcane products. |
