CHICAGO, Ill./SAO PAULO, Brazil (Reuters) — American ethanol exports to Brazil will spike during the coming months as high gasoline prices and low ethanol supplies drive up demand in the South American country, according to two traders and two brokers active in the market.
The southward flow comes as a setback to Brazil’s efforts to curb foreign shipments. Its government in September slapped a 20 percent tariff on ethanol imports from the United States above a quota of 150 million litres per quarter but is considering reversing the decision due to supply struggles.
Sales of U.S. ethanol to Brazil so far in January would surpass that quarterly quota, said a U.S. fuel trader with direct knowledge of the deals.
“Even with the 20 percent tariff, the arbitrage is pretty wide open into the northeast (of Brazil). They are going to keep pulling because they need the barrels,” the trader said.
Tarcilo Rodrigues, a partner at Bioagencia brokerage in Sao Paulo, said U.S. producers could ship as much as 450 million litres of ethanol in the December-January-February quarter — triple the quota and roughly matching record-large volumes seen in the same period a year ago.
“I believe this is a situation that will persist at least until April, when mills start processing the new centre-south cane crop and local ethanol prices tend to fall,” Rodrigues said.