SAO PAULO, April 9 (Reuters) - Ethanol prices fell sharply in Brazil in the first official week of cane processing in the 2018/19 center-south crop, pressured by an increase in supplies as most mills are boosting biofuel production this season.
Cepea/Esalq, an agricultural research center at the University of Sao Paulo, said prices for hydrous ethanol fell 8.4 percent on average last week to 1.65 real per liter ($1.84 per gallon) in Brazil’s largest fuel market, the Sao Paulo state, when compared to the previous week.
Hydrous ethanol is the type used by flex fuel cars as a substitute for gasoline. Mills had planned to boost production of the product to meet rising demand and to reduce sugar output, since prices for the sweetener are hovering around the lowest levels in 2-1/2 years.
“The pressure over ethanol prices in the Sao Paulo market comes from an increase on supply that is relatively larger than the increase on demand,” said Cepea/Esalq in a weekly analysis released on Monday.
The market research body said ethanol prices fell in other center-south states as well, such as Minas Gerais, Goiás, Mato Grosso and Mato Grosso do Sul.
But despite the drop last week, hydrous ethanol still gives around 7 percent higher returns to mills compared to sugar, the analysts said.
Lower ethanol prices in Brazil, the second largest ethanol producer behind the United States, are expected to reduce the window of opportunity for U.S. producers to export the biofuel to the Brazilian market.
Brazil’s 2018/19 center-south cane crop officially started in April. Mills are expected to maintain crushing operations until mid-December, depending on the weather.
Analysts generally expect the center-south region to cut sugar production by four or five million tonnes, to around 31 million tonnes, as they earmark more cane to ethanol output.
U.S.-based Renewable Fuels Association (RFA) said that February exports to Brazil, at 103.2 million gallons, were the highest in six years. (Reporting by Marcelo Teixeira; Editing by Sandra Maler)