Brazilian ethanol producers are seeing the first signs of a long-awaited recovery in demand, potentially easing pressure on mills that have built inventories as prices fell sharply since the start of the season.
Hydrous ethanol prices at mills in São Paulo have dropped 30% since the 2025/26 season began in April, while gasoline prices have remained broadly stable. That pushed ethanol’s pump-price ratio to gasoline down to 58% in São Paulo in July, the lowest since 2018, according to the ANP, Brazil’s oil and biofuels regulator.
“Finally, it looks like we’re seeing more buying interest in the market,” Martinho Ono, CEO of SCA Brasil, one of the country’s longest-established ethanol trading firms, told The AgriBiz. “We’re seeing it on our trading desks, and distributors themselves are reporting the same thing.”
BTG Pactual analysts have also detected a shift after examining inventory levels. Stocks stopped building over the past two weeks even though they would normally be rising at this stage of the season, analysts Thiago Duarte and Guilherme Gutilla wrote in a report distributed Wednesday.
“The data suggest that the demand is starting to resume,” they said.
Ethanol has been competitively priced against gasoline at the pump for 154 days, a period the analysts believe is finally translating into stronger consumption and potentially marking a turning point for prices.
The Cepea benchmark index for hydrous ethanol delivered in Paulínia, São Paulo state, has risen 7% this week.
The end of Brazil’s school vacation period is seen as the main driver of the pickup in demand. Cepea also said some mills need to raise cash after spending months building inventories.
Market participants had concluded that ethanol prices had reached a floor below production costs, prompting sellers to raise offers, Cepea said in a report Friday. Some producers were able to secure higher prices, while others made spot sales to meet cash needs or free up storage capacity.
Consumer Prices May Rise
BTG said current inventory levels, combined with recovering demand, suggest ethanol prices may soon begin rising for consumers.
Brazilian ethanol inventories in July were equivalent to about 14% of annual consumption, below the historical average of 20% and only slightly above the 13.6% recorded at the same point last year.
“With demand potentially already outpacing supply growth, prices will need to rise to contain this increase in demand,” BTG said.
The bank’s analysts said they would not be surprised to see ethanol prices rise enough to push the fuel above a 66% pump-price ratio to gasoline, roughly the average level recorded last year.
To reach that level, mill prices would need to increase by about 0.35 reais per liter, from 2.20 reais to 2.55 reais per liter on a Paulínia basis.
Such a move would provide a significant earnings boost for listed ethanol producers. For every 0.10-real-per-liter increase in ethanol prices, annual EBIT at São Martinho, Jalles, Adecoagro and 3tentos would rise by an average 7.5%, according to BTG Pactual.
This story was translated from the original Portuguese with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.
