Australia Markets closed

Brazil's ethanol output up but future looks uncertain

A farmer cuts sugar cane with his machete in the Usina Bonfim farm plantation in Guariba, 400 km from São Paulo, June 6, 2008

Ethanol output from Brazil's main sugar production region is up this year, but mills face financial woes that will adversely impact future harvests, the industry said Tuesday.

The amount of sugar milled this harvest through December 1 rose nearly 60 million tons, most of it earmarked for increased ethanol production, according to UNICA, which represents 60 percent of the country's sugar cane producers and processors.

Ethanol production soared nearly 19 percent during the period while that of sugar edged up only 0.66 percent, it noted.

Brazil is the world's leading sugar producer and ranks second only to the United States for ethanol output.

UNICA technical director Antonio de Padua Rodrigues said the 2013-2014 harvest should reach 589 million tons.

UNICA President Elizabeth Farina attributed the rising ethanol production in part to an increase in demand she traced to the government raising the percentage of ethanol required to be mixed in gasoline: from 20 to 25 percent.

She said the rising ethanol production was also due to "surpluses on the world sugar market and the potential demand linked to the huge fleet of flex vehicles in the country."

Flexible fuel vehicles are designed to run equally well on gasoline or a blend of up to 85 percent ethanol.

More than 54 percent of the sugar cane harvested this year was forecast to be used for ethanol output, up from 50 percent last year.

Domestic consumption, which absorbs 85 percent of Brazil's sugar cane-based ethanol, is growing at the same pace as the market for flexible fuel vehicles.

In 2020, the so-called flex vehicles are expected to make up 89 percent of the country's auto fleet, up from the current 60 percent.

But UNICA voiced concern about falling revenues linked to heavy debt at sugar mills.

"During the past year, producers have spent nearly 15 percent of their revenues on debt servicing," it noted.

And Farina stressed that despite recent government support measures, "the increased production recorded during the current harvest should not happen again in the coming years."

"In the current context, there is no profitability that would justify construction of new mills," she said.