Ethanol producers in Brazil used to hate government controls on gasoline prices that forced them to lower prices to be competitive, according to Bloomberg.
Now that oil prices globally have slumped by more than half, they can't live without them.
The state-controlled oil company Petroleo Brasileiro SA said Tuesday it would continue to sell gasoline at prices that are about 60% higher than prices abroad. That's welcome news for Brazil's struggling ethanol industry, the biggest producer of the biofuel after the U.S.
Lower gas prices would have "hit ethanol head-on," said Artur Losnak, an analyst at Banco Fator SA. "Ethanol producers are now being protected by Petrobras."
Most cars in Brazil can run on either gasoline or ethanol, and drivers typically fill their tanks with whichever fuel offers the best value at the pump.
In 2011, that became a competitive issue for ethanol producers when President Dilma Rousseff's government set price caps for gasoline in an effort to control inflation. Since then, 47 ethanol mills were forced to close and 70 others are under bankruptcy protection, according to a December report from Brazil's sugarcane trade group Unica.
The new policy may give the industry some breathing room to catch up, said Jacyr Costa, director of the Brazil unit of Tereos Internacional SA, the country's third-biggest ethanol producer. Gasoline should be kept above global levels "for a while" to help compensate for past losses, he said.
The government also said Monday that it would reimplement a longtime tax on fossil fuels that was discontinued in 2012. As a result, prices at the pump may climb to BRL3.16 (US$1.20) a litre, from BRL3.03 now, according the research company RC Consultores. Ethanol producers, unaffected by the tax, can match that increase, with the difference boosting profit. Ethanol Prices may rise to BRL2.14 a litre, from BRL2.05, the firm said.
"The measure brings a relief for the sugar and ethanol industry," said Plinio Nastari, head of the industry consulting company Datagro Ltda.
Only 36% of Brazil's flex-fuel cars were filled up with ethanol last year, down from 82% in 2009, because the fuel is relatively more expensive than gasoline in most parts of Brazil, Nastari said. Sugarcane-based ethanol has about 70% of the energy of gasoline, and drivers typically opt for gasoline when ethanol prices at the pump are more than 70% of gas prices.
Brazil ethanol exports, which slumped by 50% last year to about 1.4 billion litres, should remain at depressed levels amid low prices in U.S. and reduced incentives for biofuel in Europe, Nastari said.
The tax increase "makes ethanol more competitive," said Elizabeth Farina, Unica's chief executive officer, said at a press conference Tuesday in Sao Paulo.
"Brazil's policy support is rising for biofuel producers such as Cosan, Sao Martinho and Tereos," James Evans, a clean energy analyst at Bloomberg Intelligence said in a report Wednesday.
Raizen Energia, a joint venture of Cosan SA and Royal Dutch Shell Plc that's Brazil's biggest ethanol company, declined to comment on gasoline pricing policies, as did Sao Martinho SA, the fourth-largest producer.
"The measure was very positive and is aligned to our demands," said Rui Chammas, CEO of Biosev SA, the country's second-largest ethanol supplier. "It corrects a distortion."
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