NEW DELHI – Sugar prices have risen to multi-year highs in the international markets but the commodity is still not sweet enough to attract mills in centre-south Brazil. The new sugar season in Brazil is just a month away and mills are vouching for ethanol for better returns.
Raw sugar prices on Intercontinental Exchange-US had risen to a near three-year high of 15.9 cents per pound two weeks ago.
Higher demand for the green fuel and reduction in pollution levels in Sao Paulo –- the largest city in Brazil – are reasons enough for higher diversion of cane towards ethanol rather than the sweetener.
"…what we expect is something not different from what we saw last harvest season with larger preference to the production of ethanol rather than sugar," Executive Director of Brazilian Sugarcane Industry Association, known as UNICA, Eduardo Leo de Sousa, said.
In 2019-20 (Apr-Mar), 34.50% cane was used to produce sugar, while 65.5% was diverted to make ethanol, according to data from UNICA.
Last season, India outstripped Brazil as the world's largest sugar producer. Higher production of the sweetener in Brazil would mean more sugar in the world basket and may have a negative impact on global prices which, in turn, will deter Indian mills from exporting the surplus.
Following are edited excerpts from Eduardo Leo de Sousa's interview:
Q. What are the incentives to produce more ethanol over sugar?
A. Even though there is better price signal for sugar than the last three years, ethanol prices are still very attractive in Brazil. We still have more incentives to produce ethanol rather than sugar. Last year, the revenue that we received is 19% higher for the same tonne of cane when we produce ethanol than we produce sugar. Brazil also substituted 48% of petrol with ethanol and this should increase next season.
There is high level of demand for ethanol in the country, hence there is a shift to ethanol. Higher ethanol blend into gasoline could bring down pollution and improve air quality in the country. Brazil today has drastically cut down carbon dioxide emissions and created a healthier environment.
Q. What could be other triggers to produce more ethanol?
A. Increase in ethanol production could bring a market solution for the sector. For India, it could be a good alternative, as in the industry won't have to rely on government policies when prices of sugar fall. It will help create more balance and stability in the sugar market. Because of bumper sugar production in India, global prices had slumped to a year's low and year before that, prices were at very low level of over a decade. That's why, it would be very good not only for India but also for the sugar industry worldwide that India thinks about alternatives such as diversifying their production that comes from sugarcane to ethanol.
It will also help in reducing environmental issues and India's dependence on crude oil imports, which are currently 85%.
Q. Where do you see global sugar prices in the near future?
A. It all depends on what will happen in Brazil, Thailand, and the rest of the world in the next season. It is still very early to stay and give a range. We are going to have a deficit of sugar, which has somewhat reflected in prices. But fundamentally, we don't
expect to see attractive prices like we saw 4-5 years ago. But, we should see some improvement due to the market fundamentals.
Q. What can be the sugar-ethanol mix of cane if market conditions remain the same over the next five years?
A. It should be the same because there is a technical constraint that you cannot go too further than that because in Brazil, practically, all mills produce both sugar and ethanol. The problem is technical restriction because we have two plants in the same area or complex. So 70-30% is the highest that Brazil can go.
Q. What is your view on the percentage of ethanol-gasoline blend in Brazil over the next five years?
A. In Brazil, ethanol-gasoline blending is 27% currently. We have two different types of ethanol use. One is through the mandatory blend and the other is pure ethanol, which can be used by car owners who have flex-fuel vehicles. So it all depends. The mandatory 27% should not change in the short run, but the use of pure ethanol will depend on price relationship between petrol and ethanol. The more competitive ethanol is compared with gasoline, the more flex-fuel car owners will use ethanol.
Q. What are your suggestions for India to promote more production of ethanol?
A. Indian government should make blending of ethanol with petrol mandatory. This would make mills invest more in setting up ethanol distilleries and I think this would be the best way to dry up surplus sugarcane. The faster policies are implemented, the better. If blending would be mandatory, for sure the incentives would also be much higher than they are right now. Why? Because investors would know that demand will be there and if demand will be there then prices will also be attractive. So, in a very modest way, co-generation should be done to quickly avoid another wave of sugar surplus in the world.
Q. How can Brazil help India in their ethanol programme?
A. We can help by sharing our own experiences. We have been using ethanol as a fuel on a large scale for more than 40 years now, so we can definitely say that we have learnt very good lessons. The idea is that we can share what we have learnt in terms of public policies, car engines, ethanol distribution, benefits generated by ethanol such as air quality. A very good example is Sao Paulo. It is the largest city in Brazil and the fourth largest in terms of population and over the last 20 years, car fleet has increased by 80%. During the same time, pollutants decreased by 50% and this was because of ethanol. It would be a win-win game between producers, society and the sugar industry and would create more stability.
Q. To what extent do you see India's 6-mln-tn sugar export drive a threat to the world market?
A. It will surely affect global markets but most of it has already been factored in
in prices. Market has priced it. When you have a market that commercialises 60-70 mln tn sugar per year, then exports of around 6 mln tn is just 10% of total sugar commercialised.