Ethanol Sales Will Keep Outpacing Gasoline In Brazil

[Fledermaus]

RIO DE JANEIRO -(Dow Jones)- Ethanol sales will continue to outpace those of gasoline in Brazil and increase that lead in coming months, Alisio Mendez Vaz, executive vice president of Brazil's Fuel Distributors Federation, or Sindicom, told Dow Jones Newswires.

Ethanol prices are currently falling, while international oil prices keep rallying, which could trigger a gasoline price increase in Brazil, Mendez Vaz said late Thursday.

"Both products compete for the same clients," he said. "With ethanol prices falling, customers are more motivated to consume the biofuel."

The price advantage of ethanol is likely to increase in coming months, as the sugar cane harvest starts this month in the country's main planting areas and goes until November. Ethanol in Brazil is made from sugar cane.

A record-breaking crop is expected this year, and the majority of that cane will be turned into ethanol, further pressuring ethanol prices on the downside over the next seven months, analysts and millers expect.

Brazilian distributors have to blend 25% of ethanol into gasoline. On top of that, the sale of ethanol has skyrocketed in Latin America's largest country as a growing number of cars in Brazil are equipped with flex-fuel motors that can run on any mixture of gasoline with ethanol.

Ethanol is cheaper than regular gasoline in most of Brazil, so most flex-fuel car owners opt for ethanol.

Brazil's state-run oil company Petroleo Brasileiro SA (PBR), or Petrobras, in recent months has given mixed signals about whether it will hike gasoline prices. The company, which has a near-monopoly on refining in Brazil, hasn't raised gasoline and diesel prices since 2005.

Citigroup (C) equity research analyst Tereza Mello in Sao Paulo in a note to investors Friday said Citigroup expects Petrobras to hike diesel prices by 15% in Brazil this year, but keep gasoline prices unchanged, "due to increased competition from an oversupplied ethanol market and limited export prices."

http://money.cnn.com/news/newsfeeds/articles/djf500/200804111210DOWJONESDJONLINE000785_FORTUNE5.htm

[PSPS]

1. Aren't fuel crops a large reason the Amazon is being denuded at an astonishing pace?

[muntrv]

2. Too bad we don't have a similar situation in the US. We need to break

the big oil stranglehold on the US.

[GliderGuider]

3. Good for them.

Brazil has a climate and geography that are extremely favourable for ethanol production, and a market that is small enough for that to make a difference. That combination is not replicated in many other countries, especially within the developed world.

This is good news for Brazil, but is there any broader inference to be drawn?