SAO PAULO (Dow Jones)--The Brazilian government is mulling the hike of an obligatory 23% ethanol mix in all gasoline to 25% with increased urgency as local prices plunge, an Agricultural Ministry official told Dow Jones Newswires on Tuesday.
Average Sao Paulo mill ethanol prices for hydrous ethanol, a gasoline substitute, on Friday plummeted to their lowest point in two years in nominal terms, according to the local Cepea-Esalq index.
"With this fall of prices, the ministers that make up the Inter-ministerial Council of Sugar and Ethanol, or Cima, are already talking about the possibility of raising the mix back to 25%," said Alessandre Strapasson, the general coordinator at the Agricultural Ministry's sugar and ethanol department in a phone interview with Dow Jones Newswires.
However, Strapasson added that he had no forecast yet for when the obligatory ethanol mix might be pushed back to 25%.
"It's possible it will be in June," he said. The higher mix would help the domestic market consume an additional 40 million liters of ethanol monthly, or just under 500 million liters of ethanol per year, sustaining prices.
This month alone, local prices have fallen roughly 30% for both hydrous and anhydrous ethanol, with the onset of Brazil's enormous 2007-08 sugarcane harvest (May-April) and increased ethanol output, said a spokeswoman at the Center for Advanced Studies in Applied Economics, or Cepea.
On Friday, hydrous ethanol prices at the Sao Paulo mill gate averaged just under BRL0.61 per liter ($0.31) without taxes, down 10.5% from the week before. Anhydrous ethanol prices also dropped to BRL0.76 per liter ($0.39) without taxes, down 13.7% from the week before.
Local traders and analysts generally note that there is a bright side to tumbling local prices: the export market has perked up in recent weeks, with buyers from the U.S., European Union and Asia once again looking for deals.
On the local ethanol market, meanwhile, slipping Sao Paulo ethanol prices at the mill gate have not yet reached the consumer at the gas station, which has kept demand stable for the moment, said traders.
Despite the big fall so far, "there is space - though not much - for prices to fall still further," said Julio Maria Borges, the director of local sugar consultancy JOB Economia. Borges forecasts ethanol output from Brazil in the 2007-08 season to hit a record 20.5 billion liters, up 14.9% from the year-ago period.
Brazil's Agricultural Ministry forecasts ethanol output at over 20 billion liters this harvest, with about 3.8 billion or 4 billion liters destined for the export market, said Strapasson. Brazil is the world's leading ethanol exporter, but No. 2 ethanol producer after the U.S.
-By Grace Fan; Dow Jones Newswires; 5511 3145 1489; brazildowjones.com