Wednesday, April 16, 2008

Brazil's Golden Oil

We are likely to see an ever increasing supply of ethanol from Brazil to meet the US requirements for clean fuel. This could bring the price of US corn down in 2009 and on. (Tim)

HOUSTON (ICIS news)--Brazil will likely ship up to 700m gal (2.6bn litres) of ethanol to the US through Caribbean Basin Initiative (CBI) countries in 2009, as the US will need it to meet domestic demand, a US producer said on Friday.
The projection is based on US ethanol production reaching 10bn gal in 2008, the source said.
Under US law, the equivalent of up to 7% of US annual production can imported tax-free in 2009 via the 19 CBI countries, which include Jamaica, El Salvador, Costa Rica and Trinidad & Tobago.
Although the CBI is a US initiative to foster development in the Caribbean, it allows Brazil to bypass a 54-cents/gal tax imposed on its ethanol exports when the product is shipped directly to US shores.
The import restriction kept the arbitrage closed for Brazil during most of 2007, as the weaker US dollar and a drop in US ethanol prices made the Brazilian product too expensive.
In 2006, half of Brazil’s exports of 3.4bn litres were shipped to the US, but exports fell significantly last year, as Brazilian ethanol became less competitive and US demand for the imports of the biofuel dropped.
US ethanol prices fell below $1.70 (€1.16)/gal in the third quarter of 2007, but spot values have rebounded since then, trading this week at $2.40/gal FOB (free on board) New York Harbour, according to global chemical market intelligence service ICIS pricing.
US spot prices have steadily climbed since December, bolstered by an expected surge in US demand for the biofuel due to the new Renewable Fuels Standard (RFS).
The new RFS will require the US to use 36bn gal of renewable fuels annually by 2022, but the perception that demand will surge already in the short term was pushing up prices, two producers said.
The RFS will generate a market for 9bn gal/year of ethanol in 2008, and 11bn gal/year in 2009, one source said. US producers would have to scramble to meet demand in the next two years, the source said.
US ethanol demand in January-October 2007 was at 5.5bn gal, while output was 5.2bn gal, based on the latest data from the Renewable Fuels Association (RFA).
According to one source, Brazilian ethanol would likely flow to markets on the US East Coast, particularly to southeastern states, such as Florida, which is considering a proposal to further encourage the use of biofuels in its gasoline market, one of the largest in the country.
Florida Governor Charlie Crist was quoted as saying during a recent trip to Brazil that he was determined to fight the US tariff on ethanol, while making Florida a gateway for US imports of the Brazilian biofuel.

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