Biofuels Annual 2012

An Expert's View about Renewable Energy in Brazil

Posted on: 31 Aug 2012

This report updates the Brazilian ethanol and biodiesel policies and programs described in the Biofuels Annual report from 2011.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 8/21/2012 GAIN Report Number: BR12013 Brazil Biofuels Annual Annual Report 2012 Approved By: Fred Giles, Director Agricultural Trade Office, Sao Paulo Prepared By: Sergio Barros, Agricultural Specialist, Agricultural Trade Office, Sao Paulo Report Highlights: This report updates the Brazilian ethanol and biodiesel policies and programs described in the Biofuels Annual report from 2011 (BR110013) and provides production, supply and demand estimates and forecasts for 2012 and 2013, respectively. Post: Sao Paulo ATO 1. Executive Summary The present report includes the following sections: (1) Executive Summary; (2) Policy and Programs; (3) Bioethanol; (4) Biodiesel; (5) Advanced Biofuels; and, (6) Notes on Statistical Data. 1.1. Brazil’s Political Division The map below shows Brazil’s political division in regions and states. 2. Policy and Programs 2.1. Government Support Programs for Bioethanol 2.1.1. Regional Producer Subsidy For the past two crops, small North-Northeast sugarcane growers (approximately 20,000 farmers) were eligible for the Regional Producer Subsidy in the amount of R$ 5.00 per metric ton of sugarcane up to 10,000 metric tons. The subsidy was given to balance the cost of the production differential between Center South and the Northeast mills. The Brazilian Congress has not yet decided yet if the producers will be eligible for the subsidy during the upcoming season. 2.1.2. Ethanol use mandate In October 2011, the percentage of ethanol blended to gasoline dropped from 25 to 20 percent, due to lower availability of the product, a consequence of the drop in the size of the sugarcane crop. The aforementioned percentage should remain unchanged at least until the beginning of the 2013/14 sugarcane crop. According to Provisional Measure (Medida Provisoria – MP) #532 of April/2011, the percentage of ethanol blended to gasoline can vary from 18 to 25 percent. 2.1.3. Tax incentives for ethanol A. Tax incentives for ethanol-flex fuel vehicles The table below shows the value of IPI (Tax on Industrialized Products), PIS/COFINS (Contribution to the Social Integration Program/Contribution for Financing Social Security) and ICMS (State tax for circulation of goods and services) for different categories of vehicles as reported by the National Association of Motor Vehicle Manufacturers (ANFAVEA). Note that taxes on flex cars are lower than taxes on gasoline powered cars, especially with regard to the IPI. No changes have been made in the tax structure for 2011. Taxes Applied to Ethanol, Flex-Fuel and Gasoline Vehicles Year Taxes 1000 cc 1001-2000 cc Over 2000 cc Gas 1/ Gas /Eth/Flex 1/ Eth/Flex Gas 1/ Eth/Flex IPI 7 13 11 25 18 ICMS 12 12 12 12 12 2004 to 2007 PIS/COFINS 11.6 11.6 11.6 11.6 11.6 % of Avg MSRP 27.1 30.4 29.2 36.4 33.1 IPI 0 6.5 5.5 25 18 ICMS 12 12 12 12 12 2008 PIS/COFINS 11.6 11.6 11.6 11.6 11.6 % of Avg MSRP 22.2 26.4 25.8 36.4 33.1 IPI 5/3* 11 7.5 25 18 ICMS 12 12 12 12 12 2009 PIS/COFINS 11.6 11.6 11.6 11.6 11.6 % of Avg MSRP 25.7/24.4* 29.2 27.1 36.4 33.1 IPI 7/3* 13 7.8 25 18 Janua ICMS 12 12 12 12 12 ry thru March 2010 PIS/COFINS 11.6 11.6 11.6 11.6 11.6 % of Avg MSRP 27.1/24.4* 30 27.1 36.4 33.1 IPI 7 13 11 25 18 A ICMS 12 12 12 12 12 s of April 2010 and 2011 PIS/COFINS 11.6 11.6 11.6 11.6 11.6 % of Avg MSRP 27.1 30.4 29.2 36.4 33.1 Source: National Association of Motor Vehicle Manufacturers (ANFAVEA) 1/ Gas = Gasoline. *The tax of 3% refers to flex fuel cars MSRP = Manufacturer Suggested Retail Price. B. Tax incentives for ethanol fuel CIDE (Contribution for Intervention in Economic Domain) funds raised via this federal fuel tax are used to finance infrastructure works and maintenance of the transportation system, as well as finance environmental projects related to the oil and natural gas industry and; to pay subsidies, if determined by specific legislation, to ethanol, natural gas and oil derivates prices or distribution. CIDE for gasoline was set at zero as of mid-June 2012 to support Petrobras, the Brazilian oil company, whereas it has been fixed at zero for ethanol since May 2004. Therefore, the GoB does not provide preferential treatment for ethanol under CIDE as it had prior to June 2012. PIS/COFINS (Contribution to the Social Integration Program/Contribution for Financing Social Security) federal taxes are charged together. For gasoline, PIS/COFINS are set at R$0.2616/liter. PIS/CONFINS for ethanol have also remained unchanged at R$0.12/liter (R$0.048/liter on producers and R$0.072/liter on distributors). At the state level, there are different tax regimes for the ICMS - State tax for circulation of goods and services. ICMS charged on ethanol varies from 12 to 27 percent, with most states charging 25 percent. ICMS for gasoline varies from 25 to 31 percent. 2.1.4. Credit Lines In December 2011, the GoB published Provisional Measure # 554 creating a R$2.5 billion credit line with subsidized interest rates to support ethanol storage. Maximum financing per year is limited to R$500 million. Industry contacts report that due to the strict credit requirements to access the money, funds have been virtually untouched. In January 2012, BNDES announced a credit line of R$4 billion (approximately US$ 2billion) available until December 31, 2012, called Prorenova, to finance the renewal and/or expansion of approximately 2.5 million acres (1 million hectares) of sugarcane fields (see BR12003 for further information). The program was included as part of the 2012/13 Crop Plan released in mid-June by the Ministry of Agriculture, Livestock and Supply. Industry continue to limit participation due to the strict credit requirements to access the money. 2.1.5. Ethanol Import Tariff In December, 2011, the GoB, through Resolution #94 of the Ministry of Development, Industry and Commerce (MDIC)/Chamber of Foreign Trade (CAMEX) extended the zero import tariff applied to ethanol with less than one percent water from December 31, 2011 to December 31, 2015. Note that according to the Mercosul (Common Southern Market) agreement, the import tariff for ethanol is 20 percent, however, since April 2010, the product was included in the “list of exceptions” and cut to zero percent. 2.1.6. Ethanol Supply Contracts The National Agency of Petroleum, Natural Gas and Biofuels (ANP) has regulated the ethanol sector since April 2011 with the enactment of Provisional Measure #532. As a consequence of ANP’s regulatory role in the sector, the agency began to monitor the marketing trade of hydrous ethanol between producers and distributors as of April 2012. Fuel distributors are required to adopt a yearly supply contract to meet purchasing targets. The target is equivalent to 90 percent of total gasoline C (gasoline blended with ethanol) sales from the previous year and will be enforced in the beginning of every crop year (April 1). If distributors choose not to set a supply contract, they are required to have stocks on the last day of the month equivalent to the volume of gasoline C marketed in the subsequent month of the previous year. 2.2. Government Support Programs for Biodiesel 2.2.1. Biodiesel use mandate The biodiesel use mandate has been set at 5 percent (B5) since 2010. According to industry contacts, a proposal to increase the biodiesel bend to up to 10 percent in 2020 is under review by President Dilma Rousseff. 2.2.2. Tax Incentives The current tax system allows biodiesel producers using soybeans as raw material to take advantage of the presumed credit. The system allows the payment of taxes due when selling the product instead of paying them when purchasing the raw material. Industry contacts report that in practice, the presumed credit puts soybean incentives on equal footing with other raw materials (see table below). Federal Taxes for Biodiesel and Mineral Diesel (R$/m3) Fuel Biodiesel B100 Diesel Producer Type Family Agriculture (PRONAF) All Others Region North, Northeast & North, Northeast & All Semi-Arid l Others Zon Ales Semi-Arid Zones O thers Feed il or stock An Palm Oy Casto alm Oil or Castor Oil r O Pil PIS/PASEP 0.00 12.29 27.03 31.75 82.20 COFINS 0.00 54.46 124.47 146.20 379.30 Source: Brazilian Government 2.2.3. Biodiesel Stocks Legislation mandates storage capacity for Petrobras and Refap at approximately 100,000 liters (one month of domestic consumption), well below the average monthly consumption in Brazil (225,000 liters). No changes have been made to the legislation. There is no enforcement of the legislation as current stock levels are sufficient to guarantee a steady flow of biodiesel in the entire chain. 2.2.4. Biodiesel Import Tariff According to the Secretariat of Foreign Trade, the import tariff applied to biodiesel (NCM 3826.00.00) is set at 14 percent. 2.3. Bioefuels in the Current Brazilian Energy Matrix Environmental concerns make energy produced from biomass a key element toward sustainable development. The Ministry of Mines and Energy (MME) has set the increase of biofuels’ share in the Brazilian energy matrix as one of the policy directives for the sector. Recent data reported by the MME show that the domestic supply of energy in 2011 was 272.3 million metric tons petroleum equivalent (tpe), a 1.3 percent increase compared to 2010 (268.8 million tpe). The table below shows Brazil’s Brazilian energy supply, according to MME. Brazil Energy Supply (million TPE) Variation Share Type/Year 2009 2010 2011 2011/2010 2011 Non-Renewable Energy 128.726 147.569 152.187 3.1% 55.9% Petroleum and derivatives 92.263 101.714 105.200 3.4% 38.6% Natural Gas 21.329 27.536 27.601 0.2% 10.1% Mineral Coal and derivatives 11.706 14.462 15.243 5.4% 5.6% Uranium (U3O8) and derivatives 3.428 3.857 4.143 7.4% 1.5% Renewable Energy 114.953 121.203 120.160 -0.9% 44.1% Hydraulic and Electric Energy 37.036 37.663 39.943 6.1% 14.7% Log Wood and Vegetal Coal 24.610 25.998 26.333 1.3% 9.7% Sugarcane derivatives 43.971 47.102 42.779 -9.2% 15.7% Other Renewable sources 1/ 9.336 10.440 11.105 6.4% 4.1% Total Energy Supply 243.679 268.771 272.348 1.3% 100.0% Source: National Energetic Balance. TPE = Ton Petroleum Equivalent. 1/ Other renewable sources include biodiesel, eolic and lixivium for cellolosic production. Brazil remains the worldwide leading supplier of energy from renewable sources with 44.1 percent of the energy matrix from renewable sources in 2011 whereas it represents 8 percent of the total for the Economic Cooperation and Development (OECD) countries. MME also reports that the total domestic consumption of energy in 2011 was 228.7 million tpe, a 2.4 increase compared to 2010 (223.4 million tpe), due to higher industrial activity. Industrial use (88.4 million tpe) and transportation (74.2 million tpe) represent the largest shares of energy use with 38.6 and 32.4 percent of the total, respectively. The table below shows the Brazil’s electric energy supply matrix as reported by MME. Hydroelectric energy remains the major source of electric energy, making up to 75 percent of total supply. Electric Energy Supply Matrix (TWh) Source 2010 2011 11/10 Energia Não Renovável 75.320 64.186 -14.8% Natural Gas 36.476 26.242 -28.1% Petroleum Derivatives 16.065 14.401 -10.4% Nuclear 14.523 15.659 7.8% Mineral Coal 8.256 7.883 -4.5% Energia Renovável 476.384 507.116 6.5% Hydroelectric 403.290 428.571 6.3% Imports (Hydroelectric) 35.906 38.430 7.0% Biomass 34.941 37.411 7.1% Wind 2.177 2.705 24.2% Total 551.704 571.302 3.6% Source: MME, Balanco Energético Nacional, 2012. 2.4 Transport Fuel Consumption Transport Fuel* Consumption - Biomass-based & Fossil Fuels (mil liters) CY 2006 2007 2008 2009 2010 2011 2012 2013 Conventional Biofuels 12767 16564 20709 24388 24624 21903 22691 24472 Bioethanol 12698 16203 19584 22823 22162 19290 20000 21700 Biodiesel 69 361 1125 1565 2462 2613 2691 2772 Pure Vegetable Oil 0 0 0 0 0 0 0 0 Advanced Biofuels 0 0 0 0 0 0 0 0 Cellulosic BioEthanol 0 0 0 0 0 0 0 0 Cellulosic BioDiesel 0 0 0 0 0 0 0 0 Drop-in Gasoline 0 0 0 0 0 0 0 0 HVO Fuels 0 0 0 0 0 0 0 0 Drop-in Diesel 0 0 0 0 0 0 0 0 Drop-in Jet Fuel 0 0 0 0 0 0 0 0 Total Biomass-based Fuels 12767 16564 20709 24388 24624 21903 22691 24472 BioEthanol/Drop-in Gasoline 12698 16203 19584 22823 22162 19290 20000 21700 BioDiesel/Drop-in Diesel 69 361 1125 1565 2462 2613 2691 2772 Bio Jet Fuels 0 0 0 0 0 0 0 0 Total Fossil Fuels 67534 70829 75227 75198 85402 94781 98700 101600 Gasoline 24008 24325 25175 25409 29844 35491 38100 39200 Diesel 39008 41558 44764 44298 49239 52264 53300 54900 Jet Fuel (Gasoline+kerosene) 4518 4945 5289 5491 6320 7026 7300 7500 Total Fuel Markets Gasoline Market 36706 40528 44759 48232 52006 54781 58100 60900 Diesel Market 39078 41919 45889 45863 51701 54877 55991 57672 Jet Fuel Market 4518 4945 5289 5491 6320 7026 7300 7500 Biofuel Blend Rates (volume basis) Gasoline Market 34.6% 40.0% 43.8% 47.3% 42.6% 35.2% 34.4% 35.6% Diesel Market 0.2% 0.9% 2.5% 3.4% 4.8% 4.8% 4.8% 4.8% Jet Fuel Market 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Transport fuel projections are based on Petrobras Business Plan 2012-2016 released in June 2012. Transport Fuel* Use Projections - Ten-Year Baseline (mil liters) CY 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total Fuel Markets Gasoline 60900 63,336 65,869 69,163 79,537 91,468 105,188 120,966 125,805 130,837 Diesel 57672 59,979 62,378 65,497 75,321 86,620 99,613 114,555 119,137 123,902 Jet Fuel 7500 7,800 8,112 8,518 9,795 11,265 12,954 14,897 15,493 16,113 Petrol:Diesel Ratio = 1: 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 3. Ethanol Conventional bioethanol is defined as first generation ethanol derived from sugars and starches used to transport fuels as a substitute for fossil fuels. Bioethanol is an alcohol made by fermenting the sugar components of plant materials such as corn and wheat starch, sugarcane, sugarbeet, sorghum, and cassava. 3.1. Brazil Bioethanol Production, Supply and Demand (PS&D) Table Sugarcane is virtually the exclusive source of feedstock for bioethanol production in Brazil. The tables below show the Brazilian bioethanol supply and demand (PS&D) spreadsheets for “All Uses” and ”Fuel Use Only“ for calendar years 2008 through 2013. Several remarks must be made regarding the aforementioned tables - see Notes on Statistical Data – Bioethanol (Section 6.1.). ATO/Sao Paulo has historically reported all figures related to the sugar-ethanol industry in marketing years (MY) and, therefore, made all necessary adjustments to convert from marketing to calendar years. The Brazilian official marketing year for sugarcane, sugar and ethanol production, as determined by the Brazilian government, remains May-April for the center-south producing states, although sugarcane crushing has started as early as late March in past years. The official marketing year for the North- Northeast is September-August. Note: no Brazilian government entity or trade source maintains production figures on use “for fuel” or “other uses”. All bioethanol production figures are solely reported as hydrous and anhydrous volumes. According to post contacts, ethanol plants produce different specifications of hydrous and/or anhydrous, but make no distinction between fuel/other uses. The use for fuels/other uses (industrial, refined or neutral) are determined at the consumer level. Total Conventional Bioethanol Production, Supply and Demand All Uses (million liters) CY 2008 2009 2010 2011 2012 2013 Begin Stocks 4,829 5,783 4,048 5,916 6,891 6,362 Production 27,140 26,105 27,965 22,893 22,721 25,500 Advanced Only 0 0 0 0 0 0 Imports 0 4 76 1,136 500 700 Fuel 0 0 74 1,100 480 690 Other Uses 0 4 1 36 20 10 Total Supply 31,969 31,893 32,089 29,945 30,112 32,562 Exports 5,124 3,296 1,906 1,964 1,850 1,900 Fuel 3,044 1,118 562 1,083 1000 1000 Other Uses 2,080 2,179 1,344 881 850 900 Consumption 21,062 24,548 24,267 21,090 21,900 23,800 Fuel 19,584 22,823 22,162 19,290 20,000 21,700 Other Uses 1,478 1,725 2,105 1,800 1,900 2,100 Ending Stocks 5,783 4,048 5,916 6,891 6,362 6,862 Production Capacity (Conventional) No. of Biorefineries 407 426 436 440 440 442 Capacity 38,300 35,600 41,360 42,800 42,800 42,800 Capacity Use (%) 70.9% 73.3% 67.6% 53.5% 53.1% 59.0% Production Capacity (Advanced) No. of Biorefineries 0 0 0 0 0 0 Capacity 0 0 0 0 0 0 Capacity Use (%) 0 0 0 0 0 0 Co-Product Production - Conventional (1,000 MT) Product X 0 0 0 0 0 0 Feedstock Use - Conventional (1,000 MT) Sugarcane 335,188 346,070 342,254 293,807 285,750 322,607 Fuel 291,242 294,316 300,048 259,399 251,165 284,653 Other Uses 43,946 51,754 42,207 34,408 34,585 37,954 Feedstock Use - Advanced (1,000 MT) Feedstock A 0 0 0 0 0 0 Source: Prepared by ATO/Sao Paulo based on MAPA, SECEX, Datagro, ANP, UNICA and industry sources. Numbers for 2012 and 2013 are projections. Ethanol - Conventional and Advanced Fuels (million liters) CY 2008 2009 2010 2011 2012 2013 Beginning Stocks 4,468 5,422 3,683 5,549 6,488 5,939 Production 23,582 22,201 24,516 20,212 19,971 22,500 Advanced Only 0 0 0 0 0 0 Imports 0 0 74 1,100 480 690 Exports 3,044 1,118 562 1,083 1,000 1,000 Consumption 19,584 22,823 22,162 19,290 20,000 21,700 Ending Stocks 5,422 3,683 5,549 6,488 5,939 6,429 Production Capacity (Conventional Fuel) No. of Biorefineries 407 426 436 440 440 442 Capacity 33,279 30,276 36,260 37,788 37,620 37,765 Capacity Use (%) 70.9% 73.3% 67.6% 53.5% 53.1% 59.0% Production Capacity (Advanced) No. of Biorefineries 0 0 0 0 0 0 Capacity 0 0 0 0 0 0 Capacity Use (%) 0 0 0 0 0 0 Co-Product Production - Conventional (1,000 MT) Product X 0 0 0 0 0 0 Feedstock Use - Conventional (1,000 MT) Sugarcane 291,242 294,316 300,048 259,399 251,165 284,653 Feedstock Use - Advanced (1,000 MT) Feedstock A 0 0 0 0 0 0 Source: Prepared by ATO/Sao Paulo based on the "Bioethanol Production, Supply and Demand - All Uses" table. Numbers for 2012 and 2013 are projections. 3.2. Production A. Production Estimates Post projections are based on industry sources. To be in accordance with the actual feedstock production cycle, the following narrative describes sugarcane and ethanol production in marketing years (MY). Note that all necessary adjustments were made to convert production figures from MY to calendar years. The Agricultural Trade Office (ATO)/Sao Paulo estimates the MY 2012/13 Brazilian sugarcane production at 565 million metric tons (mmt), up 4 mmt from MY 2011/12. The production estimate for the Center- South (CS) region remains unchanged at 500 mmt of sugarcane, a 1 percent increase relative the previous crop (493 mmt), due to expected low agricultural yields as a result of the aging of the sugarcane fields and below average rainfall during the January-March 2012 period. ATO/Sao Paulo forecasts the North-Northeast (NNE) production for MY 2012/13 at 65 mmt, similar to 2011/12 (68 mmt). Total sucrose (total reducing sugar, TRS) content destined for sugar and ethanol production during MY 2012/13 is estimated at 48.63 and 51.37 percent, respectively, as opposed to 48.07 and 51.93 percent, respectively for MY 2011/12. Sugar-ethanol mills are expected to continuously divert sugarcane crushing to sugar production due to steady strong demand for the product in foreign markets. In addition, the sector should supply enough anhydrous ethanol to the Brazilian market to guarantee the 20 percent blend to gasoline. It is still too early to project MY 2013/14 production figures. More precise numbers should be available in the first quarter of 2013 with the development of feedstock from new sugarcane plantings and recovery from current harvested areas; e.g., sugarcane from second, third, fourth, fifth and older cuts; as well as projections for sugar and ethanol demand in both the domestic and international markets. The current production forecast is based on the assumption that regular weather conditions will prevail throughout the sugarcane production cycle. Post projects sugarcane production for MY 2013/14 at 600 mmt, a 6 percent increase compared to the current crop, assuming that the CS will recover from lower agricultural yields projected for the current crop. ATO projects the 2013 total bioethanol production at 25.5 billion liters, up 12 percent from the 2012 estimate (22.7 billion liters). Ethanol for fuel production is forecast at 22.5 billion liters for 2013, a 2.5 billion liters increase over 2012 (19.97 billion liters). UNICA has made a long-term projection for sugarcane and ethanol production in Brazil. According to the association, sugarcane production projections are 886 million and 1.2 billion metric tons for MY 2015/16 and 2020/21, respectively, to supply the sugar domestic market, keep the current share in the sugar world market, supply ethanol for 50 percent of the projected vehicle fleet and supply the required volumes set by the U.S. Renewable Fuels Standard by 2020. B. Industrial Capacity No changes have been made to the total industrial capacity for sugarcane crushing which is estimated at approximately 3.2 mmt of sugarcane/day for center-south sugar-ethanol plants and 400,000 mmt/day for northeast plants. Therefore, Brazil’s installed crushing capacity is approximately 3.6 mmt/day. Ethanol production capacity for 2013 is forecast at 42.8 billion liters, similar to 2011 and 2012. Ethanol installed industrial capacity depends on yearly decisions made by individual plants to produce sugar and/or ethanol. Post contacts report that the industry responds to the theoretical ratio of 40:60 to change from sugar to ethanol production or vice versa from harvest to harvest. Once producing units adjust their plants to produce a set ratio of sugar/ethanol in a given year, there is much less flexibility to change it during the crushing season. Ethanol production capacity estimated in this report was based on production figures reported by UNICA. Post took the highest ethanol production figure in a given 15-day period, and extrapolated to the entire Center-south crushing season. A similar procedure was followed for Northeast production based on MAPA reports. Sugarcane crushed for ethanol production was calculated based on the actual production breakdown for sugar/ethanol as described in previous GAIN reports. On average, one metric ton of sugarcane produces 80.5 liters of ethanol. C. New Investments and Credit The graph below shows revised data for the evolution of new ethanol-sugar plants as of MY 2005/06 as reported by UNICA. UNICA estimates only two new plants for 2012/13, due to low investments in greenfield projects. The current overcapacity in sugarcane crushing, obstacles to obtain credit for investments and the need to renew old sugarcane fields have discouraged new plant investments. Total number of sugar-ethanol mills in 2012 is estimated at 440 units, whereas total operating units for 2013 are projected at 442. D. Sugarcane and Ethanol Prices received by Producers Sugarcane prices received by third party suppliers for major producing states are based on a formula that takes into account prices for sugar and ethanol prices both in the domestic and international markets. The State of Sao Paulo Sugarcane, Sugar and Ethanol Growers Council (CONSECANA) was the first to develop this formula for the state of Sao Paulo, the major producing state comprising roughly 60 percent of the Brazilian production. The average CONSECANA price for the current crop (MY 2012/13) for the April-June 2012 period is R$0.5020 kg of TRS, or approximately R$64.35 ton of sugarcane. CONSECANA reports that the average sugarcane price for the state of Sao Paulo for the 2011/12 crop is R$0.5018 per kg of TRS, or R$70.34 per ton of sugarcane. According to industry sources, sugarcane represents between 60 to 70 percent of the cost of producing ethanol. Current production cost is estimated at R$0.95 to R$1.00/liter for hydrous ethanol and R$1.05 to R$1.10/liter for anhydrous ethanol (ROE = US$1.00/R$2.00). The aforementioned numbers vary according to the efficiency of the plant. The Ethanol Indexes released by the University of Sao Paulo’s College of Agriculture "Luiz de Queiroz" (ESALQ) follow. The Indexes track anhydrous and hydrous ethanol for fuel prices received by producers in the domestic spot market. Prices remain competitive even during the harvest season, as a consequence of tight availability of the product. Fuel Anhydrous Ethanol Prices: State of São Paulo (R$/000 liters). Month 2008 2009 2010 2011 2012 January 786.22 873.30 1,285.40 1,233.20 1,270.30 February 808.08 860.30 1,297.60 1,293.10 1,184.60 March 831.50 744.50 974.60 1,596.60 1,278.80 April 789.40 697.00 908.40 2,375.00 1,259.70 May 821.50 676.40 839.20 1,380.70 1,294.30 June 787.00 692.80 827.30 1,244.60 1,234.00 July 1/ 873.20 803.78 924.20 1,298.90 1,298.20 August 858.50 820.70 961.90 1,352.80 September 891.20 912.90 1,040.20 1,384.20 October 902.20 1,086.40 1,173.20 1,378.50 November 897.00 1,093.80 1,185.20 1,377.30 December 880.60 1,131.60 1,201.80 1,359.20 Source: USP/ESALQ/CEPEA. July 1/ refers to July 09-13. Fuel Hydrous Ethanol Prices: State of São Paulo (R$/000 liters). Month 2008 2009 2010 2011 2012 January 697.18 781.40 1,171.20 1,109.40 1,159.00 February 714.70 777.60 1,095.80 1,176.10 1,119.80 March 754.56 656.80 825.20 1,421.90 1,204.40 April 715.60 621.30 799.70 1,387.50 1,191.40 May 697.10 585.22 724.30 1,005.90 1,140.10 June 665.30 606.60 720.30 1,113.70 1,082.80 July 1/ 718.10 710.20 797.90 1,136.80 1,056.10 August 719.30 726.50 835.70 1,193.00 September 749.60 791.40 896.20 1,204.60 October 715.70 935.10 977.70 1,229.70 November 726.40 941.90 1,001.00 1,277.00 December 737.70 1,000.40 1,075.10 1,250.10 Source: USP/ESALQ/CEPEA. July 1/ refers to July 09-13. 3.3. Consumption Brazil remains an important user of ethanol for fuel consumption. Total domestic demand for ethanol for calendar year 2013 is forecast at 23.8 billion liters, an 8 percent increase over 2012 (21.9 billion liters), based on likely higher supply, more attractive ethanol prices at the pump compared to 2012 and the continued steady sales of flex-fuel vehicles in the market. Total ethanol consumption for use as fuel is estimated at 21.7 billion liters for 2013. Ethanol consumption for other uses is projected at 2.1 billion liters, up 200,000 liters compared to 2012 (1.9 billion liters) due to strong demand from the chemical industry. The size of the Brazilian light vehicle fleet was roughly estimated at 27.7 million units in 2011 and pure hydrous ethanol and flex fuel powered vehicles represent together approximately over 50 percent of the total fleet. Industry projections report that the share of flex fuel vehicles is likely to reach over 80 percent by 2019. The table below shows the licensing of flex fuel vehicles (FFV) and hydrous ethanol powered cars, as reported by the Brazilian Association of Vehicle Manufacturers (ANFAVEA). Sales of FFV currently represent over 80 percent of total monthly vehicle sales. Licensing of Ethanol Powered Vehicles (pure ethanol & flex fuel units) 2006 2007 2008 2009 2010 2011 2012 /1 1,432,197 2,003,197 2,329,331 2,652,368 2,876,223 2,848,122 1,402,693 Source: National Association of Vehicle Manufacturers (ANFAVEA) 1/ January-June Note: flex fuel vehicles were introduced in March 2003. The steady sales of flex-fuel vehicles do not solely guarantee a higher demand for ethanol given that consumers’ decisions are driven by the ratio between ethanol and gasoline prices. The 70 percent ratio between ethanol and gasoline prices is the rule of thumb in determining whether flex car owners will choose to fill up with ethanol (price ratio below 70 percent) or gasoline (price ratio above 70 percent). Limited supply of ethanol during the January-April 2012 period has favored gasoline consumption in several Brazilian states, as reported in the tables below, thus reducing ethanol demand. Gasoline prices continued attractive in June 2012, a traditional crushing period during the sugarcane harvest in the center-south. Gasoline and Ethanol Prices in Selected States (average price, R$/liter) Gasoline Ethanol 2009 2010 2011 2012 2009 2010 2011 2012 Jan 2.393 2.477 2.487 2.649 1.312 1.807 1.733 1.888 Feb 2.398 2.509 2.490 2.641 1.331 1.831 1.765 1.818 Sao Paulo State Jun 2.349 2.399 2.665 2.636 1.168 1.274 1.704 1.805 Aug 2.351 2.412 2.663 1.231 1.387 1.814 Jan 2.391 2.475 2.482 2.647 1.312 1.810 1.733 1.874 Sao Paulo City Feb 2.396 2.508 2.486 2.630 1.327 1.835 1.766 1.801 Jun 2.346 2.395 2.680 2.630 1.180 1.274 1.716 1.786 Aug 2.348 2.408 2.673 1.230 1.382 1.820 Jan 2.381 2.489 2.537 2.824 1.611 1.965 1.902 2.208 M Feb 2.374 2.509 2.584 2.817 1.623 2.077 1.956 2.166 inas Gerais Jun 2.326 2.412 2.823 2.806 1.501 1.678 2.075 2.142 Aug 2.361 2.621 2.817 1.564 1.710 2.126 Jan 2.331 2.431 2.499 2.761 1.597 1.926 1.886 2.172 Belo Horizonte (MG Feb 2.329 2.458 2.547 2.746 1.612 2.064 1.938 2.128 Capital) Jun 2.282 2.379 2.778 2.741 1.487 1.661 2.087 2.127 Aug 2.313 2.381 2.781 1.547 1.683 2.113 Jan 2.537 2.641 2.654 2.850 1.685 2.044 2.022 2.266 Feb 2.535 2.663 2.663 2.846 1.695 2.104 2.053 2.257 Rio Janeiro State Jun 2.524 2.613 2.892 2.854 1.588 1.703 2.200 2.256 Aug 2.526 2.598 2.854 1.604 1.718 2.212 Jan 2.534 2.640 2.651 2.818 1.680 2.050 2.025 2.257 Feb 2.531 2.660 2.661 2.810 1.692 2.106 2.057 2.236 Rio Janeiro Capital Jun 2.521 2.611 2.865 2.821 1.579 1.695 2.165 2.253 Aug 2.523 2.595 2.824 1.598 1.713 2.191 Jan 2.538 2.568 2.534 2.738 1.746 2.257 2.103 2.372 Porto Alegre (RS Feb 2.538 2.592 2.552 2.689 1.765 2.335 2.157 2.348 Capital) Jun 2.419 2.488 2.722 2.657 1.550 1.765 2.180 2.390 Aug 2.577 2.560 2.632 1.765 1.836 2.237 Jan 2.565 2.654 2.667 2.831 1.581 1.838 1.822 1.959 G Feb 2.564 2.655 2.697 2.782 1.581 1.897 1.891 1.899 oiania (GO Capital) Jun 2.562 2.304 2.830 2.672 1.483 1.227 1.782 1.856 Aug 2.556 2.384 2.838 1.411 1.347 1.837 Jan 2.388 2.530 2.644 2.551 1.615 1.909 1.871 2.076 Feb 2.533 2.530 2.647 2.660 1.747 2.013 1.944 2.077 Fortaleza (CE Capital) Jun 2.363 2.663 2.688 2.564 1.671 1.807 2.029 2.163 Aug 2.575 2.645 2.661 1.768 1.772 2.161 Source: Petroleum, Natural Gas and Biofuels National Agency (ANP). Ratio Ethanol/Gasoline Prices 2009 2010 2011 2012 Jan 55% 73% 70% 71% Feb 56% 73% 71% 69% Sao Paulo Jun 50% 53% 64% 68% Aug 52% 58% 68% Jan 55% 73% 70% 71% Feb 55% 73% 71% 68% Sao Paulo Jun 50% 53% 64% 68% Aug 52% 57% 68% Jan 68% 79% 75% 78% M Feb 68% 83% 76% 77% inas Gerais Jun 65% 70% 74% 76% Aug 66% 65% 75% Jan 69% 79% 75% 79% Feb 69% 84% 76% 77% Belo Horizonte Jun 65% 70% 75% 78% Aug 67% 71% 76% Jan 66% 77% 76% 80% Feb 67% 79% 77% 79% Rio Janeiro Jun 63% 65% 76% 79% Aug 63% 66% 78% Jan 66% 78% 76% 80% Feb 67% 79% 77% 80% Rio de Janeiro Jun 63% 65% 76% 80% Aug 63% 66% 78% Jan 69% 88% 83% 87% Feb 70% 90% 85% 87% Porto Alegre Jun 64% 71% 80% 90% Aug 68% 72% 85% Jan 62% 69% 68% 69% G Feb 62% 71% 70% 68% oiania Jun 58% 53% 63% 69% Aug 55% 57% 65% Jan 68% 75% 71% 81% Feb 69% 80% 73% 78% Fortaleza Jun 71% 68% 75% 84% Aug 69% 67% 81% Source: Petroleum, Natural Gas and Biofuels National Agency (ANP). Gray Area means gasoline prices more attractive than ethanol Fuel consumption in Brazil, as reported by the Petroleum, Natural Gas and Biofuels National Agency (ANP), follows. The figures take into account the product sales by distributors and do not include illegal sales, which were common in the past for hydrous ethanol due to tax differentiation between both types of ethanol. As a result of measures taken by ANP to avoid tax evasion, figures as of 2008 better reflect total hydrous ethanol consumption. Brazilian Fuel Consumption Matrix (000 m3) 2007 2008 2009 2010 2011 2012 1/ Diesel * 41,558 44,764 44,298 49,239 52,264 17,067 Gasoline C** 24,325 25,175 25,409 29,844 35,491 12,530 Hydrated Ethanol 9,367 13,290 16,471 15,074 10,899 3,046 Source: ANP. * Diesel includes Bx Biodiesel as of 2008. ** Gasoline C includes 20-25 % of anhydrous ethanol. 1/ 2012 refers to January-April. 3.4. Trade A. Exports Brazilian total ethanol exports for 2013 are forecast at 1.9 billion liters, similar to 2012 (1.85 billion liters). Total fuel ethanol exports are estimated at 1 billion liters for both 2012 and 2013. The tables below show ethanol exports (NCM 2207.10 through 2207.20.19) for 2011 and 2012 (January-June), as reported by the Brazilian Secretariat of Foreign Trade (SECEX). Brazilian Ethanol Exports (NCM 2207.10, 2207.20.11 & 2207.20.19, MT, 000 Liters, US$ 1,000 FOB) CY 2011 CY 2012 1/ Country Volume Weight Value Volume Weight Value USA 663,925 524,711 566,954 331,787 266,471 271,212 Japan 280,873 226,171 196,212 76,947 61,753 55,415 South Korea 300,045 242,467 201,083 37,885 30,618 25,931 Jamaica 137,589 110,904 109,416 20,594 16,654 16,496 Netherlands 95,504 77,130 66,092 18,889 15,255 14,091 China 0 0 0 14,799 11,956 9,225 Puerto Rico 20,255 16,468 17,268 14,784 12,019 12,735 Trinidad and Tobago 135,881 109,880 105,196 14,700 11,888 13,386 Nigeria 73,603 59,495 49,077 14,457 11,680 10,598 Others 256,342 206,818 180,479 50,172 40,481 39,172 Total 1,964,017 1,574,045 1,491,778 595,014 478,775 468,262 Source : Brazilian Foreign Trade Secretariat (SECEX) Note : Numbers may not add due to rounding 1/Jan- Jun. B. Imports Brazilian total ethanol imports for 2013 are projected 0.7 billion liters, almost exclusively for fuel use, up 200 million liters from 2012. The tables below show ethanol imports (NCM 2207.10 through 2207.20.19) for 2011 and 2012 (January-June), as reported by the Brazilian Secretariat of Foreign Trade (SECEX). Brazilian Ethanol Imports (NCM 2207.10., 2207.20.11 & 2207.20.19, MT, 000 Liters, US$ 1,000 FOB) CY 2011 CY 2012 1/ Country Volume Weight Value Volume Weight Value USA 1,099,692 870,601 790,773 481,287 379,099 331,992 Jamaica 285 252 948 273 260 872 Barbados 88 73 115 113 96 138 Germany 61 71 661 16 14 244 Mexico 10 7 47 3 3 21 Spain 11 6,708 4,457 1 1 5 Italy 9 7 45 1 1 1 France 1,674 1,321 1,266 1 2 35 Netherlands 17 13,398 16,204 0 0 0 Trinidad and Tobago 417 345 441 0 0 0 United Kingdom 34,718 27,371 26,030 0 0 0 Others 0 0 1 26 21 45 Total 1,136,980 920,154 840,988 481,720 379,496 333,354 Source : Brazilian Foreign Trade Secretariat (SECEX) Note : Numbers may not add due to rounding 1/Jan - Jun. 3.5. Ending Stocks Beginning stocks for the bioethanol for “All Uses” table is based on information from MAPA and reflect all stocks at ethanol plants on January 1, 2006. Beginning stocks for the bioethanol “For Fuel Only” table is estimated based on historical average use of bioethanol for fuel/other uses. On average, ethanol for fuel has represented 87 percent of total ethanol disappearance (consumption and exports), therefore Post assumed this percentage to calculate the theoretical beginning stocks for fuel in January 1, 2006. All other stock figures were calculated based on the difference between total supply and disappearance. ATO/Sao Paulo projects ending stocks for fuel ethanol at 6.4 billion liters for 2013, up 8 percent relative to the 2012 stock level (5.9 billion liters). Ending stocks measured on December 31 of each year do not actually reflect the supply and demand balance. In general, ethanol plants in the center-south are nearing the end of the crushing, whereas ethanol plants in the northeast are fully operating. As a consequence, stock levels are expected to be high. Stock figures measured on April 1, after subtracting the disappearance (consumption and exports) during the first quarter of the year, will likely show a more realistic picture about product availability in the beginning of the new crop season (April). 3.6. Market for Ethanol Used as Other Industrial Chemicals The table below shows the Brazilian bioethanol supply and demand (PS&D) spreadsheet for “Other Uses” for calendar years 2006 through 2013. No Brazilian authority or trade source maintains production figures on use “for fuel” or “other uses”. All bioethanol production figures are solely reported as hydrous and anhydrous volumes. According to post contacts, ethanol plants produce hydrous and/or anhydrous ethanol and make no distinction between fuel/other uses. The use for fuels/other uses (industrial, refined or neutral) are determined at the consumer level. Ethanol for “other uses” is used by companies for chemicals, cosmetics, etc. It is common that “ethanol refineries” purchase hydrous/anhydrous ethanol to reprocess and resell to smaller businesses. During the reprocessing, these plants change the original specifications of the product to meet the requested demand. Ethanol Used as Other Industrial Chemicals (million liters) CY 2008 2009 2010 2011 2012 2013 Beginning Stocks 361 361 366 367 403 423 Production 3,558 3,904 3,449 2,681 2,750 3,000 Imports 0 4 1 36 20 10 Exports 2,080 2,179 1,344 881 850 900 Consumption 1,478 1,725 2,105 1,800 1,900 2,100 Ending Stocks 361 366 367 403 423 433 Production Capacity (Conventional Fuel) No. of Biorefineries 407 426 436 440 440 442 Capacity 5,021 5,324 5,100 5,012 5,180 5,035 Capacity Use (%) 70.9% 73.3% 67.6% 53.5% 53.1% 59.6% Source: Prepared by ATO/Sao Paulo based on the "Bioethanol Production, Supply and Demand - All Uses" table. Numbers for 2011 and 2012 are projections. The Crystal Sugar and Ethanol Indexes released by the University of Sao Paulo’s College of Agriculture "Luiz de Queiroz" (ESALQ) follow. The Indexes track anhydrous and hydrous ethanol for “other uses” prices received by producers in the domestic spot market. Price for Anhydrous Ethanol - Other Uses: State of São Paulo (R$/000 liters). Period 2008 2009 2010 2011 2012 January 940.00 906.40 1,297.20 1,122.50 1,350.30 February 913.10 893.70 1,348.20 1,182.10 1,248.80 March 972.60 784.00 1,044.30 1,443.10 1,297.80 April 921.70 721.60 926.20 1,424.80 1,321.20 May 920.10 733.80 880.10 1,054.70 1,331.40 June 896.60 701.60 830.60 1,078.80 1,340.70 July 955.20 810.80 925.20 1,165.90 August 963.10 846.00 983.80 1,234.00 September 986.90 916.80 1,047.60 1,207.10 October 923.20 1,043.90 1,175.40 1,259.60 November 913.60 1,100.50 1,222.40 1,296.20 December 939.80 1,098.70 1,221.60 1,275.30 Source: USP/ESALQ/CEPEA. Price for Hydrated Ethanol - Other Uses: State of São Paulo (R$/000 liters). Period 2008 2009 2010 2011 2012 January 798.80 792.30 1,196.20 1,122.50 1,186.40 February 798.40 799.40 1,139.60 1,182.10 1,154.60 March 854.80 689.40 891.50 1,443.10 1,211.70 April 817.90 646.20 803.70 1,424.80 1,217.90 May 786.30 611.40 743.40 1,054.70 1,176.00 June 743.90 622.50 727.80 1,078.80 1,114.80 July 799.80 717.30 810.70 1,165.90 August 803.00 745.70 856.10 1,234.00 September 827.60 807.70 897.80 1,207.10 October 778.00 942.30 1,000.60 1,259.60 November 769.90 983.60 1,007.80 1,296.20 December 769.70 997.10 1,074.50 1,275.30 Source: USP/ESALQ/CEPEA. 4. Biodiesel Biodiesel is a trans-esterified vegetable oil also known as fatty acid methyl ester produced from soy oil, rapeseed, oil, other vegetable oils, animal fats, and recycled cooking oils. 4.1. Brazil Biodiesel Production, Supply and Demand (PS&D) Table The table below shows the Brazil’s biodiesel supply and demand (PS&D) table for calendar years (CY) 2006 through 2013. Biodiesel - Conventional & Advanced Fuels (Mil. Liters) Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production, Total 69 404 1,167 1,608 2,386 2,673 2,700 2,760 Advanced Only 0 0 0 0 0 0 0 0 Imports 4 4 5 4 9 18 0 0 Exports 4 3 1 3 8 6 0 0 Consumption 69 361 1,125 1,565 2,462 2,613 2,691 2,772 Ending Stocks 0 45 90 135 60 132 141 129 Production Capacity – Conventional No. of Biorefineries 7 36 62 63 66 65 68 70 Capacity (Mil. Liters) 300 1,800 3,600 4,350 5,837 6,742 7,100 7,100 Capacity Use (%) 23% 22% 32% 37% 41% 40% 38% 39% Production Capacity – Advanced No. of Biorefineries -- -- -- -- -- -- -- -- Capacity (Mil. Liters) -- -- -- -- -- -- -- -- Capacity Use (%) -- -- -- -- -- -- -- -- Feedstock Use - Conventional (1,000 MT) Soybean for Crush 252 1,475 4,255 5,866 8,704 8,893 9,398 9,427 Cottonseed for Crush 15 86 248 341 506 851 568 585 Animal Fat 9,730 57,012 164,570 226,742 336,492 401,994 402,331 414,364 Feedstock Use - Advanced (1,000 MT) Feedstock A 0 0 0 0 0 0 0 0 4.2. Production A. Feedstock Biodiesel can be produced from several raw materials such as soybeans, castor seed (Ricinus communis), African palm oil (“dendê”), “pinhao manso” (Jatropha curcas), sunflower, peanut, animal fat, fried oil or others. According to updated information reported by the Petroleum, Natural Gas and Biofuels National Agency (ANP), despite the variety of feedstock which can potentially be used to produce biodiesel, soybeans still represents over 77 percent of total biodiesel feedstock, followed by animal tallow (16 percent) and cottonseed (4 percent). The tables below show official USDA data for soy and cotton oil production for MY 2008/09 through 2011/12, as well as a projection for MY 2012/13. Brazil Soybeans and Products Production (000 hectares, 000 metric tons) 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 Area harvested 21,700 23,500 24,200 25,000 26,500 Soybeans 57,800 69,000 75,500 65,500 78,000 Soybeans for crushing 30,778 35,700 36,733 34,900 37,700 Meal, Soybean 23,850 27,670 28,470 27,050 29,220 Oil, Soybean 5,910 6,850 7,050 6,700 7,230 Source: USDA/FAS Brazil Cotton and Products Production (000 hectares, 000 metric tons) 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 Area Harvested 843 836 1,400 1,400 1,075 Seed Cotton 1/ 3,114 3,123 4,942 5,329 3,960 Lint Cotton 1,193 1,187 1,959 1,981 1,524 CottonSeed 1,930 1,977 2,750 2,900 2,650 Meal, Cottonseed 948 972 1,350 1,425 1,300 Oil, Cottonseed 318 326 454 478 437 Source: USDA/FAS 1/ Seed cotton calculated based on average lint yields. B. Production Estimates Biodiesel production remains regulated by the government. In 2013, total Brazil biodiesel production is forecast at 2.760 billion liters, a 2 percent increase compared to the revised forecast for 2012 (2.7 billion liters), assuming that the mandatory biodiesel mixture remains unchanged at 5 percent. Biodiesel production in 2011 was 2.67 billion liters, as reported by ANP. Cumulative January-April 2012 production is approximately 757 million liters, or 56 percent of the auctioned volume for January-June 2012. Biodiesel production is reported below. Brazil Biodiesel Monthly Production/Deliveries (000 liters) Month 2007 2008 2009 2010 2011 2012 January 17,109 76,784 90,352 147,435 186,327 193,006 February 16,933 77,085 80,224 178,049 176,783 214,607 March 22,637 63,680 131,991 214,150 233,465 196,833 April 18,773 64,350 105,458 184,897 200,381 153,052 May 26,005 75,999 103,663 202,729 220,484 -- June 27,158 102,767 141,139 204,940 231,573 -- July 26,718 107,786 154,557 207,434 249,897 -- August 43,959 109,534 167,086 231,160 247,934 -- September 46,013 132,258 160,538 219,988 233,971 -- October 53,609 126,817 156,811 199,895 237,885 -- November 56,401 118,014 166,192 207,868 237,189 -- December 49,016 112,053 150,437 187,856 216,870 -- Total 404,329 1,167,128 1,608,448 2,386,399 2,672,760 757,498 Source: ANP ANP reports that as of May 2012, Brazil has 64 plants authorized to produce biodiesel, 10 projects with authorization to build plants and 6 new projects in the process of receiving authorization from the agency. Current authorized industrial capacity is estimated at 19.53 million liters/day or approximately 7 billion liters/year, based on a 360 day operation cycle. This represents approximately 2.6 times the mandatory biodiesel production to be blended in mineral diesel (B5) in 2012; and a 13 percent increase compared to the authorized industrial capacity for the same period in 2010 (17.32 million liters/day). ATO/Sao Paulo projects industrial capacity for 2012 and 2013 at 68 and 70 plants, respectively, or 7.1 billion liters per year. Projections are based on information for authorized plants and requests for authorization provided by ANP and industry sources. C. Cost of Production and Market Prices The biodiesel market remains regulated by the government through a public auction system (see BR110013 – Brazilian Biofuels Annual Report for more information) which gives preference to producers with the Social Fuel Stamp. The Social Fuel Stamp provides incentives for poorer farmers (family farmers) in disadvantaged areas. Biodiesel producers with this stamp are eligible for tax incentives as described in Section 2.2.2 – Tax incentives, better credit terms, and classification as a socially friendly company. The tables below summarize the results of the 21st through the 25th auctions during 2011 and 2012. The 26th auction was held in early June 2012 and resulted in the total purchased quantity of 768,939 m3 at the average price of R$2,551/m3. Additional auctions should take place in the upcoming months to guarantee supply for the last months of the year. Biodiesel Auctions Auction 21st Auction 1 21st Auction 2 22nd Auction 1 22nd Auction 2 Date 02/16-18/11 02/16-18/11 05/24-26/11 05/24-26/11 Number of Suppliers 27 27 31 22 Offered Quantity (m3) 660,000 700,000 Purchased Quantity (m3) 528,000 132,000 560,000 140,000 Opening/Reference Price (R$/m3) 2,378.96 2,413.33 2,316.25 2,354.50 Average Price (R$/m3) 1/ 2,046.00 2,047.02 2,252.58 2,027.70 Price Discount (%) (14.00) (15.18) (2.75) (13.88) Delivery Date Apr-Jun/11 Apr-Jun/11 Jul-Sep/11 Jul-Sep/11 Source: ANP 1/ Price FOB, including PIS/PASEP and COFINS, excluding ICMS Biodiesel Auctions Auction 23rd Auction 24rd Auction 25rd Auction Date 08/24-29/11 11/21-23/11 02/27-29/12 Number of Suppliers 101 91 83 Offered Quantity (m3) 700,000 650,000 700,000 Purchased Quantity (m3) 700,000 647,000 679,400 Opening/Reference Price (R$/m3) 2,493.31 2,480.17 2,391.45 Average Price (R$/m3) 1/ 2,398.75 2,396.19 2,105.25 Price Discount (%) (3.79) (3.39) (11.97) Delivery Date Oct-Dec/11 Jan-March/12 Apr-Jun/12 Source: ANP 1/ Price FOB, including PIS/PASEP and COFINS, excluding ICMS Biodiesel prices received by producers are determined by the public auction system (see Average Price in the tables above). Producers are not allowed to change the sales price set at the auctions and consequently must search for low cost raw material or hedge their activities to offset risk. According to the Brazilian Association of Vegetable Oil Industries (ABIOVE), raw materials make up approximately 80 percent of biodiesel production cost. Given that roughly 80 percent of biodiesel production still results from the use of soybean oil, the profitability of the sector is highly dependent on oilseed prices. The tables below show the price for soybean oil in 2011 and 2012 (January-April). The average crude price in the state of Sao Paulo is R$2,441.88/ton for January-April 2012, relatively similar compared to the same period in 2011 (R$2,505.63/ton). Soybean Oil, Crude - Prices (2011) Location Jan Feb Mar Apr May Jun Chicago (US$/ton) 1,268 1,271 1,230 1,276 1,261 1,254 Premium (US$/ton) 9.92 8.82 -1.10 -4.08 -4.57 -1.76 Port of Paranaguá - Fob (US$/ton) 1,278 1,280 1,229 1,272 1,256 1,252 São Paulo - (R$/ton com ICMS 12%) 2,525 2,608 2,515 2,375 2,360 2,354 Elaborated by ABIOVE based on several sources. Soybean Oil, Crude - Prices (2011) Location Jul Aug Sep Oct Nov Dec Chicago (US$/ton) 1,246 1,218 1,220 1,127 1,131 1,120 Premium (US$/ton) 0.22 23.81 -22.05 -2.87 -0.01 -0.18 Port of Paranaguá - Fob (US$/ton) 1,247 1,242 1,198 1,124 1,131 1,120 São Paulo - (R$/ton com ICMS 12%) 2,270 2,315 2,510 2,445 2,335 2,285 Elaborated by ABIOVE based on several sources. Soybean Oil, Crude - Prices (2012) Location Jan Feb Mar Apr May Jun Chicago (US$/ton) 1,139 1,165 1,195 1,231 Premium (US$/ton) -0.21 0.04 -0.10 0.02 Port of Paranaguá - Fob (US$/ton) 1,139 1,165 1,195 1,231 São Paulo - (R$/ton com ICMS 12%) 2,360 2,343 2,460 2,605 Elaborated by ABIOVE based on several sources. 4.3. Consumption Biodiesel domestic consumption remains regulated by GoB, thus the sector must comply with the biodiesel mandate which requires all mineral diesel to have a five percent biodiesel blend (B5) as of 2010. Based on industry projections for mineral diesel domestic demand, ATO/Sao Paulo forecasts total biodiesel domestic consumption for 2012 and 2013 at 2.691 and 2.772 billion liters, respectively. Biodiesel consumption for 2011 is estimated at 2.613 billion liters based on mineral diesel consumption of 52.26 billion liters and the mandatory mixture of five percent (B5) during 2011. The table below shows the vehicle fuels consumption matrix from 2007-2012, according to ANP. Brazil Fuel Consumption Matrix (000 m3) 2007 2008 2009 2010 2011 2012 1/ Diesel * 41,558 44,764 44,298 49,239 52,264 17,067 Gasoline C** 24,325 25,175 25,409 29,844 35,491 12,530 Hydrated Ethanol 9,367 13,290 16,471 15,074 10,899 3,046 Source: ANP. * Diesel includes Bx Biodiesel as of 2008. ** Gasoline C includes 20-25 % of anhydrous ethanol. 1/ 2012 refers to January-April. 4.4. Trade The following tables show biodiesel imports and exports for NCM 3824.90.29 from 2007 – 2011 in metric tons as reported by the Brazilian Secretariat of Foreign Trade (SECEX) and converted to liters. No trade has been registered under NCM 38.26.00.00 as of 2012. Brazil Biodiesel Trade (NCM 3824.90.29, metric tons) 2007 2008 2009 2010 2011 Exports 2,222 1,289 2,432 7,302 5,356 Imports 3,194 4,409 3,803 7,904 15,412 Source: SECEX. 1/ Jan-May Brazil Biodiesel Trade (NCM 3824.90.29, 000 Liters) 2007 2008 2009 2010 2011 Exports 2,539 1,473 2,779 8,345 6,121 Imports 3,651 5,039 4,346 9,033 17,613 Source: ATO/Sao Paulo, based on SECEX figures and biodiesel density = 0.875 g/cm3 1/ Jan-May Export figures by country of destination and imports by origin for the years 2010 and 2011 are shown below, according to SECEX. Brazil Biodiesel Exports by Country of Destination (Metric tons, US$ 000 FOB) CY 2010 CY 2011 Country Quantity Value Quantity Value Argentina 5,780 11,352 3,405 8,486 Singapore 337 781 481 1,411 USA 8 14 228 46 Chile 184 837 204 1,119 South Africa 96 234 185 532 China 231 532 178 556 Indonesia 112 145 176 228 Venezuela 40 141 162 979 Peru 87 447 116 597 Paraguay 69 299 77 398 Others 357 1,146 143 619 Total 7,302 15,929 5,356 14,971 Source : Brazilian Secretariat of Foreign Trade SECEX - NCM 3824.90.29 1/ Jan - May Brazil Biodiesel Imports by Country of Origin (Metric Tons, US$ 000 FOB) CY 2010 CY 2011 Country Quantity Value Quantity Value Germany 1,974 6,178 4,631 13,754 USA 2,059 7,730 4,172 12,197 Spain 1,188 3,451 2,026 8,090 China 43 226 1,530 891 Mexico 1,708 5,300 1,350 4,689 Canada 28 143 530 1,047 Singapore 108 283 367 1,238 Denmark 189 385 155 309 Malaysia 7 39 149 651 Taiwan 2 23 139 1,086 Others 599 2,681 362 2,381 Total 7,904 26,440 15,412 46,333 Source : Brazilian Secretariat of Foreign Trade SECEX - NCM 3824.90.29 - 1/ Jan - May 4.5. Stocks ATO/Sao Paulo forecasts biodiesel ending stocks for 2013 at 129 million liters, similar to 2012 (141 million liters), based on the difference between total supply and disappearance (consumption and exports). 5. Advanced Biofuels Brazil has no commercial use of advanced biofuels. Post contacts project the use of advanced biofuelson on a commercial basis within five years. 6. Notes on Statistical Data 6.1. Bioethanol Beginning stocks for the bioethanol for “All Uses” table is based on information from the Ministry of Agriculture, Livestock and Supply (MAPA) and reflect all stocks at the ethanol plants as of January 1, 2006. Beginning Stocks for the bioethanol “For Fuel Only” table is estimated based on historical average use of bioethanol for fuel/other uses. On average, ethanol for fuel has represented 87 percent of the total ethanol disappearance (use), therefore Post assumed this percentage to calculate the theoretical beginning stocks for fuel in January 1, 2006. All other stock figures were calculated based on the difference between total supply and disappearance (consumption and exports). Bioethanol production estimates for “All Uses” were provided by MAPA and are consistent with previous ATO/Sao Paulo GAIN reports submitted by marketing year. Production estimates “For Fuel Only” are taken as the difference between “production for All Uses” minus estimates for “disappearance for other uses” (domestic consumption and exports) given that all Brazilian official publications and industry sources report production in hydrous/anhydrous ethanol only. Trade figures were based on the Brazilian Secretariat of Foreign Trade (SECEX). SECEX breaks down trade numbers in four categories as described below: NCM 2207.10.10 – undenatured ethylic alcohol with ethanol content equal or over 80 percent. With water content equal or below 1 percent vol. Undenatured alcohol is defined as pure ethanol with no additives and suitable for consumption. NCM 2207.10.90 - undenatured ethylic alcohol with ethanol content equal or over 80 percent. Others. Undenatured alcohol is defined as pure ethanol with no additives and suitable for consumption. NCM 2207.20.11 - denatured ethylic alcohol with any ethanol content. With water content equal or below 1 percent vol. Denatured alcohol is defined as ethanol with additives which make it poisonous and/or unpalatable, thus, no suitable for human consumption. Denatured alcohol is used as a solvent and as fuel for spirit burners and camping stoves. Different additives like methanol are used to make it difficult to use distillation or other simple processes to reverse the denaturation. NCM 2207.20.19 - denatured ethylic alcohol with any ethanol content. Others. Denatured alcohol is defined as ethanol with additives which make it poisonous and/or unpalatable, thus, no suitable for human consumption. Denatured alcohol is used as a solvent and as fuel for spirit burners and camping stoves. Different additives like methanol are used to make it difficult to use distillation or other simple processes to reverse the denaturation. There are no figures for ethanol exports for fuel and/or other uses. Post estimated ethanol “for fuel” based on the type of ethanol that is usually imported by the final destination, as reported by UNICA. Thus, the United States, the Caribbean countries and Sweden usually import ethanol for fuel; whereas Japan, Korea and several other importing countries, including the European Union import ethanol for industrial and other uses. Domestic consumption figures were taken from information provided by Datagro, the Petroleum, Natural Gas and Biofuels National Agency (ANP) and UNICA. The number of biorefineries were taken from MAPA and UNICA. Ethanol production capacity was based on production figures as reported by UNICA. Post took the highest ethanol production figure in a given 15- day period, as reported by the institution, and extrapolated to the entire Center-South crushing season. A similar procedure was performed for Northeast production based on MAPA reports. Sugarcane crushed for ethanol production was calculated based on the actual production breakdown for sugar/ethanol as described in previous GAIN reports. Note that on average, one metric ton of sugarcane produces 80.5 liters of ethanol. 6.2. Biodiesel Production numbers are based on figures reported by ANP and forecasts are based on projections for diesel consumption and the results from the public auctions. Biodiesel market continues to be regulated by the government through a public auction system which sets the volume of biodiesel that should be produced and delivered to fuel distributors in a particular period. Consumption figures are based on mineral diesel consumption and the mandatory mixture of biodiesel (B2, B3, B4, B5) in mineral diesel set by Brazilian legislation. Trade figures were based on the Brazilian Secretariat of Foreign Trade (SECEX), as reported below: From 2006 through 2011 - NCM 3824.90.29 – Other industrial fatty acid derivatives, mixtures and preparations containing fatty alcohols or carboxylic acids or their derivatives. As of 2012 – NCM 3826.00.00 – biodiesel and their blends. The number of biorefineries and production capacity are based on ANP reports. Feedstock use for biodiesel consumption is based on the following conversion rates: 0.875 metric ton of biodiesel = 1,000 liters of biodiesel 1 metric ton of biodiesel = 1.03 metric ton of soybean oil 1 metric ton of biodiesel = 1.00 metric ton of cottonseed oil Extraction rate for soybean oil = 0.1919 Extraction rate for cottonseed oil = 0.1649 1 kg of animal fat = 1.064 liters of biodiesel 6.3. Exchange Rate Exchange Rate (R$/US$1.00 - official rate, last day of period) Month 2006 2007 2008 2009 2010 2011 2012 January 2.22 2.12 1.76 2.32 1.87 1.67 1.74 February 2.14 2.12 1.68 2.38 1.81 1.66 1.71 March 2.17 2.05 1.75 2.25 1.78 1.62 1.82 April 2.09 2.03 1.69 2.18 1.77 1.57 1.89 May 2.30 1.93 1.63 1.97 1.81 1.57 2.02 June 2.16 1.93 1.64 1.95 1.80 1.56 2.02 July 2.18 1.88 1.57 1.87 1.75 1.56 2.05 August 1/ 2.14 1.96 1.63 1.88 1.75 1.59 2.02 September 2.17 1.84 1.92 1.78 1.69 1.85 -- October 2.14 1.74 2.12 1.74 1.70 1.69 -- November 2.17 1.78 2.33 1.75 1.71 1.85 -- December 2.14 1.77 2.34 1.74 1.66 1.88 -- Source : Gazeta Mercantil and BACEN (as of October 2006) 1/ August 2012 refers to August 10.
Posted: 31 August 2012

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