By Marcelo Teixeira and Roberto Samora: MARCH 30, 2020
NEW YORK/SAO PAULO, March 30 (Reuters) – Two of Brazil’s largest fuel distributors said on Monday they are cutting the amount of ethanol they will buy from local suppliers to adjust to a slump in demand amid the coronavirus lockdown in Latin America’s largest economy.
Brazil’s number 1 fuel distributor, BR Distribuidora , said it will reduce the amount of ethanol it buys from Brazilian mills to levels that are below the minimum defined in contracts, due to an “atypical situation” created by the COVID-19 pandemic.
Raizen Combustiveis SA, which is owned by Brazil’s Cosan SA and Royal Dutch Shell Plc, declared force majeure. It said it would not comply with volumes previously agreed for March and would make adjustments to volumes for coming months as well.
The actions by two of the largest players in Brazil’s fuel market would sharply reduce the amount of ethanol that mills are able to sell as they kick off the harvest of a record cane crop in the country’s center-south region.
Analysts believe mills will end up allocating much more cane to produce sugar than ethanol in the new season, leading to a large increase in the flow of Brazilian sugar to the global market for the sweetener.
Sugar prices fell almost 4% in New York on Monday, near a 1-1/2-year low, as analysts believe the additional production from Brazil will erase an expected global deficit that was giving support to prices recently.
Brokers say the ethanol market in Brazil was in disarray amid the lockdown, with only a few deals taking place, a large gap between the offers from mills and fuel distributors and much uncertainty for the coming days.
Ethanol accounted for around 40% of the fuel used by light vehicles in Brazil last year. The product competes with gasoline at pumps for car owners preference. Falling gasoline prices are already squeezing margins for ethanol producers.
Reporting by Marcelo Teixeira and Roberto Samora; Editing by Lisa Shumaker and Leslie Adler
