Brazilian ethanol industry faces the challenge of inflation
2018-06-12 17:00:03
The rise in fuel prices has made Brazil's sugar and ethanol industries the biggest scapegoats. Although the Brazilian government adopted emergency import measures in April, the prices of ethanol and gasoline have soared to the highest levels in history. What's worse is that at a time when inflation is serious and rising fuel prices have become an important indicator of inflation, the government took this as a reason to “cut a knife†into the sugar industry and the ethanol industry.
Currently, Brazil has more than 3 million light-duty vehicles, about 90% of which are equipped with flexible engines and can use any kind of fuel. The fuel needed by the car increases by about 15% annually. From 2000 to 2008, the harvest of sugarcane increased by approximately 10.4% annually because there are now more than 100 new sugar mills and the planting area of ​​sugar cane is nearly 3 million hectares in these years. However, the annual rate of additional growth in the past two years was only 3.3%, among which were the causes of poor weather and the lack of investment. In short, sugar cane harvested this year only increased 13 million tons from 2010, an increase of 2%.
Antonio Padua, Technical Director of the Brazilian Sugarcane Association (Unica) said that the wet weather in March made the situation worse and the harvest period had to be delayed. About 20 sugar mills only began to squeeze on May 10, and the sugar content of sugar cane was lower than expected. So far, Unica has not revised its March forecast.
The 12 refineries in Brazil are now operating at full capacity. However, this year's gasoline production is unlikely to increase. At present, only one ethanol plant has been built in Brazil, so the import of fuel will increase, and the production of fuel will not begin until the end of 2013, and all additional fuel consumption will be imported from overseas.
The sugar is still in short supply Officially stated that due to the high price of sugar in 2010, the sugar mills are more inclined to produce sugar instead of ethanol. In fact, most of the more than 100 sugar mills have produced only ethanol since 2003. Compared with the 44.7% sugarcane ratio in 2009, the proportion of sugar cane used for sugar production was only about 2%. The sucrose content was above average in 2010, so the 2010 sugar output was 5 million tons more than in 2009. But this will not happen again this year.
It is alleged that Brazilian government officials and people in the industry are clearly aware that the shortage of ethanol has already begun long ago, but now the government has to control the price of fuel because of the need to curb inflation. So now there is a series of policies related to ethanol. Although the government is worried about its effect, there is still no effective response and the supply situation has become even worse. The Sugar Cane Association is concerned that the uncertainties brought about by the new measures will hit new investors rather than encourage them.
In order to meet the growing demand, Brazil needs an additional 50-60 million tons of sugar cane each year. However, this year's sugar cane production in southern and southern Brazil has only increased by 12 million tons compared with 2010, and it will not be more than this level in 2012. Unica, Brazil's sugarcane association, said that if it were to meet the demand for ethanol fuel for 50% of twin-engine cars, it would need to build 150-200 new sugar mills between now and 2020. Carlos Grubisich, chief executive of ETH, said that if these new sugar factories are put into operation, the planting area of ​​sugarcane will increase by 2 million hectares and the total investment will reach 50 billion U.S. dollars.
Why does Brazil not follow the example of the United States? Mr Angelo Bressan, head of the Brazilian Ministry of Agriculture, believes that the government should follow the example of the United States and take all measures to protect domestic fuel supplies. However, Alexandre Figliolino, head of the Brazilian Uthai Bank, believes that the situation in the United States is not suitable for Brazil.
In the United States, companies can start or stop harvesting corn for fuel production at any time. If prices are higher, corn can also be used as animal feed or other uses. However, the sugarcane industry in Brazil is very integrated. Once sugarcane is ripe, it must be immediately squeezed, and it is not as useful as corn. At the same time, the U.S. model relied on a large amount of government subsidies to support, while Brazil could not afford it.
Allegedly, although there are no plans to build a new sugar mill, production will increase on the basis of the existing 430 sugar mills. Mr Padua believes that if the amendment is made, then the annual ethanol production will increase by 10-20 billion liters. But he fears that a new generation of sugar mills will be needed after 2015, and no one is planning for this. In addition, the government does not appear to be planning to tackle how to deal with the increasing demand.
The rapid development of fuel vehicles was not expected to be recalled in the late 1990s. At that time, a new sugar-processing plant was planned. No one thought that ethanol demand in Brazil would grow so fast. At the time, people just wanted to export the extra ethanol produced to Europe, the United States, or Japan. About 3 million people in Brazil have benefited from the sugar industry. The economic situation is getting better and better. In the past 8 years, these people have increased from their original monthly income of 500 US dollars to 900 US dollars. The unemployment rate is also getting lower and lower. The lowest record of 6% unemployment rate; at the same time, the sales volume of cars is also getting higher and higher. Compared to six years ago, the sales volume of cars in Brazil is now doubled every year. In 2003, the cost of importing crude oil and petroleum was about $2 billion more than the amount of money earned from exporting gasoline and fuel.
Many car owners ignore economic laws. Although the price of ethanol has risen rapidly since 2010, people who switched their car's fuel from ethanol to blended fuel (alcohol gasoline) have not expected much, probably because many Brazilians are very wealthy nowadays. The rise has no effect on them and it does not change the original habit. In April, due to the high price of ethanol, many people found that the rapid increase in the cost of starting to use mixed fuel, resulting in many places in a few days, the demand for mixed fuel rose by 50%.
Gasoline and diesel prices in Brazil are consistent with international oil prices. The purpose is to keep the price of oil as long as possible in order to curb inflation. When crude oil prices exceeded US$100/barrel per barrel, Petrobras, the 40-year net exporter of gasoline, had to start importing fuel, and the cumulative loss in 2011 reached US$800 million. However, with the increase in inflation, the government has also had to increase oil prices.
The cost of producing ethanol is getting higher and higher, but its price cannot rise unless gasoline also rises in price. Therefore, when the price of sugar is high, the production of fuel becomes less attractive.
Sugar cane renewal rate is still lower than demand. In the past few years, the annual new sugar cane ratio is far lower than the ideal value of 15-18%, leading to an increase in the average growth cycle of sugarcane. The new species of sugar cane can produce more than 100 tons of sugar cane per hectare. With the extension of the growth cycle, the yield is getting lower and lower, and the yield per hectare is less than 50 tons after the sugarcane grows up to 5 years. Now that the price of sugar is so high, the only hope is that the rate of new species of sugar cane will be higher. However, the rainfall in March was higher than usual, and it was impossible to plant more sugar cane. Due to the dry weather last year, the sugar cane harvested at present is also lower than in previous years. Too much rainfall also means that there will be more weeds and pests, so the cost of removing insects will be higher, and the yield will be less than expected.
Prospects So far no suitable way has been found to produce ethanol during the sugarcane harvest season to prepare for the summer peak season. But this problem is temporary.
Although the government has been reluctant to participate directly in the arrangements and the buzz, Mr. Antonio Padua, technical director of the Unica Sugarcane Association (Unica) thinks that a law passed by Congress should be enforced nowadays.
He said that the industry should now take steps to reduce costs. About 70% of sugar cane is used to produce sugar and ethanol, so efforts must be made to develop new varieties to increase yields and to ensure better use of sugarcane leaves and bagasse to increase revenue.
He believes that all sugar mills should install power generation equipment under the encouragement of the government, and they can sell surplus power to the transmission grid. Such sales revenue is fixed for as long as 10 years, which gives investors a stable guarantee.
Mr Padua also believes that measures must be taken to ensure that more efficient engines can be installed on dual-fuel vehicles. If the working efficiency of using hybrid fuel vehicles can reach about 80% of the use of gasoline, then 3 billion liters of ethanol will be reduced each year.
Currently, Brazil has more than 3 million light-duty vehicles, about 90% of which are equipped with flexible engines and can use any kind of fuel. The fuel needed by the car increases by about 15% annually. From 2000 to 2008, the harvest of sugarcane increased by approximately 10.4% annually because there are now more than 100 new sugar mills and the planting area of ​​sugar cane is nearly 3 million hectares in these years. However, the annual rate of additional growth in the past two years was only 3.3%, among which were the causes of poor weather and the lack of investment. In short, sugar cane harvested this year only increased 13 million tons from 2010, an increase of 2%.
Antonio Padua, Technical Director of the Brazilian Sugarcane Association (Unica) said that the wet weather in March made the situation worse and the harvest period had to be delayed. About 20 sugar mills only began to squeeze on May 10, and the sugar content of sugar cane was lower than expected. So far, Unica has not revised its March forecast.
The 12 refineries in Brazil are now operating at full capacity. However, this year's gasoline production is unlikely to increase. At present, only one ethanol plant has been built in Brazil, so the import of fuel will increase, and the production of fuel will not begin until the end of 2013, and all additional fuel consumption will be imported from overseas.
The sugar is still in short supply Officially stated that due to the high price of sugar in 2010, the sugar mills are more inclined to produce sugar instead of ethanol. In fact, most of the more than 100 sugar mills have produced only ethanol since 2003. Compared with the 44.7% sugarcane ratio in 2009, the proportion of sugar cane used for sugar production was only about 2%. The sucrose content was above average in 2010, so the 2010 sugar output was 5 million tons more than in 2009. But this will not happen again this year.
It is alleged that Brazilian government officials and people in the industry are clearly aware that the shortage of ethanol has already begun long ago, but now the government has to control the price of fuel because of the need to curb inflation. So now there is a series of policies related to ethanol. Although the government is worried about its effect, there is still no effective response and the supply situation has become even worse. The Sugar Cane Association is concerned that the uncertainties brought about by the new measures will hit new investors rather than encourage them.
In order to meet the growing demand, Brazil needs an additional 50-60 million tons of sugar cane each year. However, this year's sugar cane production in southern and southern Brazil has only increased by 12 million tons compared with 2010, and it will not be more than this level in 2012. Unica, Brazil's sugarcane association, said that if it were to meet the demand for ethanol fuel for 50% of twin-engine cars, it would need to build 150-200 new sugar mills between now and 2020. Carlos Grubisich, chief executive of ETH, said that if these new sugar factories are put into operation, the planting area of ​​sugarcane will increase by 2 million hectares and the total investment will reach 50 billion U.S. dollars.
Why does Brazil not follow the example of the United States? Mr Angelo Bressan, head of the Brazilian Ministry of Agriculture, believes that the government should follow the example of the United States and take all measures to protect domestic fuel supplies. However, Alexandre Figliolino, head of the Brazilian Uthai Bank, believes that the situation in the United States is not suitable for Brazil.
In the United States, companies can start or stop harvesting corn for fuel production at any time. If prices are higher, corn can also be used as animal feed or other uses. However, the sugarcane industry in Brazil is very integrated. Once sugarcane is ripe, it must be immediately squeezed, and it is not as useful as corn. At the same time, the U.S. model relied on a large amount of government subsidies to support, while Brazil could not afford it.
Allegedly, although there are no plans to build a new sugar mill, production will increase on the basis of the existing 430 sugar mills. Mr Padua believes that if the amendment is made, then the annual ethanol production will increase by 10-20 billion liters. But he fears that a new generation of sugar mills will be needed after 2015, and no one is planning for this. In addition, the government does not appear to be planning to tackle how to deal with the increasing demand.
The rapid development of fuel vehicles was not expected to be recalled in the late 1990s. At that time, a new sugar-processing plant was planned. No one thought that ethanol demand in Brazil would grow so fast. At the time, people just wanted to export the extra ethanol produced to Europe, the United States, or Japan. About 3 million people in Brazil have benefited from the sugar industry. The economic situation is getting better and better. In the past 8 years, these people have increased from their original monthly income of 500 US dollars to 900 US dollars. The unemployment rate is also getting lower and lower. The lowest record of 6% unemployment rate; at the same time, the sales volume of cars is also getting higher and higher. Compared to six years ago, the sales volume of cars in Brazil is now doubled every year. In 2003, the cost of importing crude oil and petroleum was about $2 billion more than the amount of money earned from exporting gasoline and fuel.
Many car owners ignore economic laws. Although the price of ethanol has risen rapidly since 2010, people who switched their car's fuel from ethanol to blended fuel (alcohol gasoline) have not expected much, probably because many Brazilians are very wealthy nowadays. The rise has no effect on them and it does not change the original habit. In April, due to the high price of ethanol, many people found that the rapid increase in the cost of starting to use mixed fuel, resulting in many places in a few days, the demand for mixed fuel rose by 50%.
Gasoline and diesel prices in Brazil are consistent with international oil prices. The purpose is to keep the price of oil as long as possible in order to curb inflation. When crude oil prices exceeded US$100/barrel per barrel, Petrobras, the 40-year net exporter of gasoline, had to start importing fuel, and the cumulative loss in 2011 reached US$800 million. However, with the increase in inflation, the government has also had to increase oil prices.
The cost of producing ethanol is getting higher and higher, but its price cannot rise unless gasoline also rises in price. Therefore, when the price of sugar is high, the production of fuel becomes less attractive.
Sugar cane renewal rate is still lower than demand. In the past few years, the annual new sugar cane ratio is far lower than the ideal value of 15-18%, leading to an increase in the average growth cycle of sugarcane. The new species of sugar cane can produce more than 100 tons of sugar cane per hectare. With the extension of the growth cycle, the yield is getting lower and lower, and the yield per hectare is less than 50 tons after the sugarcane grows up to 5 years. Now that the price of sugar is so high, the only hope is that the rate of new species of sugar cane will be higher. However, the rainfall in March was higher than usual, and it was impossible to plant more sugar cane. Due to the dry weather last year, the sugar cane harvested at present is also lower than in previous years. Too much rainfall also means that there will be more weeds and pests, so the cost of removing insects will be higher, and the yield will be less than expected.
Prospects So far no suitable way has been found to produce ethanol during the sugarcane harvest season to prepare for the summer peak season. But this problem is temporary.
Although the government has been reluctant to participate directly in the arrangements and the buzz, Mr. Antonio Padua, technical director of the Unica Sugarcane Association (Unica) thinks that a law passed by Congress should be enforced nowadays.
He said that the industry should now take steps to reduce costs. About 70% of sugar cane is used to produce sugar and ethanol, so efforts must be made to develop new varieties to increase yields and to ensure better use of sugarcane leaves and bagasse to increase revenue.
He believes that all sugar mills should install power generation equipment under the encouragement of the government, and they can sell surplus power to the transmission grid. Such sales revenue is fixed for as long as 10 years, which gives investors a stable guarantee.
Mr Padua also believes that measures must be taken to ensure that more efficient engines can be installed on dual-fuel vehicles. If the working efficiency of using hybrid fuel vehicles can reach about 80% of the use of gasoline, then 3 billion liters of ethanol will be reduced each year.