Brazilian sugar companies are increasing their capacity to produce ethanol in the face of depressed global sugar prices and government policies expected to boost demand for the biofuel.
A shift to ethanol in the 2018-19 season slashed Brazil’s sugar output by 9 million tonnes to a 12-year low and more switching to the biofuel next season could help to wipe out a global surplus weighing on sugar prices.
Brazil could also lose its crown as the world’s biggest sugar producer to India for the first time in 16 years, according to the U.S. Department of Agriculture.
For Brazilian sugar cane processors, switching to ethanol has proved an attractive trade-off as the increased focus on the biofuel partly shielded mills from a plunge in global sugar prices in September to their lowest since 2008.
Executives at major Brazilian sugar firms Biosev and Usina Coruripe www.usinacoruripe.com.br/en, as well as smaller producers such as Usina Batatais us.usinabatatais.com.br and Usina Cerradao www.usinacerradao.com.br, told Reuters they were now investing in more ethanol capacity ahead of next season.
Biosev, for example, Brazil’s second largest cane processor, said it was installing distillation columns at two plants in the Mato Grosso do Sul cluster to give the mills the option of using 90 percent of their cane for ethanol, up from 50 percent now.
In another sign the industry is making a longer-term bet on ethanol in step with Brazil’s biofuels policy, JW, a leading Brazilian ethanol equipment maker, told Reuters it has hired 200 people to cope with a surge in orders.
Brazil first rolled out policies to use more biofuels in 1975 after OPEC’s supply embargo drove up oil prices. So-called flex-fuel cars that run on pure ethanol or a gasoline-ethanol blend now make up 80 percent of Brazil’s light vehicle fleet.
In a new push, the government this year approved a program called RenovaBio that mandates fuel distributors to gradually increase the amount of biofuels they sell from 2020.
Brazil’s Ministry of Mines and Energy expects RenovaBio to push demand to 47.1 billion liters in 2028 from 26.7 billion in 2018, helping Brazil’s ethanol industry recover from years of competition with subsidized gasoline prices.
“Investments are only made looking into the long term,” said Plinio Nastari, chief analyst at Brazilian consultancy Datagro www.datagro.com “Part of these investments are being made because of the establishment of these targets.”