SUGAR PRICES STEADY IN BRAZILIAN DOMESTIC MARKET

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Even with the high volatility of sugar prices in the international market and the close of the harvesting season in Brazil's South-Central region, prices held steady on the Brazilian domestic market in July.

A survey carried out by the Center for Advanced Studies in Applied Economics (Cepea) shows that sugar prices dropped 4% over the past month, as the harvest period came to an end. The decrease could have been larger, if demand for ethanol in the international market hadn’t remained equally steady.

The 50-kilo sack closed the month of July (7/31) at R$ 48.38 (~US$22.00), according to the Cepea/Esalq index. During the same time period last year, a sack sold for approximately R$ 30 (~US$ 13.64).

Over the past weeks, sugar sales have had the objective of raising cash and reducing inventory, according to Cepea. The organization says that, last week, factoring in parity of sugar prices on the Brazilian domestic and international markets, domestic sales brought in 6% more revenues than did exports.

Market analysts say that sugar is also proving itself more profitable than ethanol. Plants in the Center-South are anticipating their export commitments.

The international market has worked, for the fourth successive year, with no production surplus. Market experts expect sugar crops in Thailand and India to recover, a fact that should put pressure on international prices.

Ethanol prices also remain steady, reflecting strong international demand and the current tendency in Brazil to direct production toward sugar.

In the last week of July (ended 7/28), the liter of anhydrous ethanol closed at R$ 1.032 (without taxes), an increase of 35.7% over the same period last year. In January, the price had been R$ 1.22.

Brazilian shipments of ethanol remain strong and are expected to pass the initial forecast by industry experts. Brazilian ethanol exports should reach 3.5 billion liters in 2006-07, 34.6% more than what was shipped during the same period of time in 2005, according to UNICA, the Union of Sugar Cane Growers of Sao Paulo state. Initial expectations had shipments repeating last year’s performance, of 2.6 billion liters.

The expansion can be credited mainly to robust demand in the United States, where new legislation requires oil companies to switch the additive MBTE for ethanol in the production of gasoline.

In July, shipments hit a record 500 million liters – 84% of this amount went to the U.S.; the rest was shipped to the Caribbean, which, under the Caribbean Basin Initiative, can re-export it to the United States, tariff-free.

According to UNICA, the good performance should not repeat itself next year, as the U.S. is speeding up its program to set up corn ethanol refineries. There are currently 90 projects underway.

Even with the good volumes that have been exported, supply to the Brazilian domestic market is guaranteed, as the internal market shrank, due to an increase in ethanol prices at the pump. Consumption is expected to remain between 13 and 14 billion liters, with production at 17 billion.

The refineries have a production capacity for about 18 billion liters per year. There are currently 89 projects for new refineries, 31 of which are already being built. 16 will be located in Sao Paulo state; 4, in Goias state; 3, in Minas Gerais state; 3, in Mato Grosso do Sul state; 3 in Mato Grosso state; one, in Parana state; and one in Rio Grande do Sul state.

Total investments are expected to exceed US$ 13 billion.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.