Brazil to pare ethanol to 20 pct in gasoline

www.alertnet.org 15 Jan 2003 19:02

(Adds quote from minister, details, background) By Inae Riveras

SAO PAULO, Brazil, Jan 15 (Reuters) - Brazil will from Feb. 1 reduce the cane-based ethanol blended into gasoline to 20 percent from 25 percent during the inter-harvest period of the center- south cane crop, the Agriculture Ministry said on Wednesday.

Agriculture Minister Roberto Rodrigues met with the sugarcane industry earlier Wednesday to discuss the supply of cane-based ethanol and inform them of the ministry's decision.

"These measures were taken in the face of a possible failure in the supply of alcohol (ethanol) on the market in April or May because of an increase in demand," said Rodrigues on the government's official news service, Brasil Agora.

Officials at the ministry said the consumption of alcohol fuels has risen in recent weeks with a spike in the prices of more expensive petroleum based fuels such as gasoline.

With the end of the 2002 harvest a few months ago and the next harvest of the main cane crop in the Center-South region not due until April, the price of ethanol, or alcohol as it is called locally, has risen sharply recently. A liter of alcohol is nearly 1 real at the pump, up 30 percent from a year ago.

Currently, Brazil blends gasoline sold domestically with 25 percent alcohol, the maximum amount allowed. The minimum mix is 20 percent.

Cane-based alcohol normally tracks the price of petroleum, but is currently is half the price and it always remains cheaper than gasoline. Barring a crop shortfall, cane alcohol is cheaper to produce than gasoline as long as crude oil remains above $18 per barrel.

Oil futures on the New York Mercantile Exchange were at $32.75 a barrel Wednesday morning on the exchange's electronic ACCESS before the open of open-outcry trading.

Although alcohol prices are high, reducing the distilled cane in the national fuel blend would raise the overall price of gasoline at the pump and put pressure on consumer inflation.

And world oil prices are rising as the general strike in Venezuela drags on, throttling its oil industry, and as speculation about an imminent U.S.-led attack on Iraq intensifies. The U.S. accuses Iraq of holding weapons of mass destruction.

Brazil is the world's largest sugarcane grower, refining about half of its annual crop into sugars and distilling the rest into alcohols.

Rodrigues, who presides over the Interministerial Council of Sugar and Alcohol (Cima), has the authority to alter the percentage of alcohol in fuel.

Officials said mills in the center-south region -- where 85 percent of Brazil's cane is grown -- are expected to start crushing cane in early April, one month before the traditional start of the region's crop year, and provide new alcohol supplies.

The Sao Paulo Cane Industry Union (Unica) said recently the new crop should be at least as big or bigger as the last crop. The 2002/03 (May-April) cane crop was pegged at 266 million to 268 million tonnes, up 9 percent from the previous season.