Brazil. Biofuels Annual. Jul 2014 Aug. 18, 2014
Total Brazilian ethanol production for 2015 is projected at 26.9 billion liters, a 5 percent increase compared to 2014. Ethanol exports are forecast at 1.8 billion liters, up 200 million from current year. The biodiesel industry remains regulated by the government which recently increased biodiesel blend requirements to 6 percent effective July 1, 2014 and 7 percent effective November 1, 2014. As a consequence, biodiesel production for 2015 is projected at 4.4 billion liters, up 900 million liters from 2014.
1. Executive Summary
The present report includes the following sections: (1) Executive Summary; (2) Policy and Programs; (3) Ethanol; (4) Biodiesel; (5) Advanced Biofuels; and, (6) Notes on Statistical Data.
2. Policy and Programs
2.1. Government Support Programs for Ethanol
2.1.1. Regional Producer Subsidy
The president of the Northeastern Sugarcane Producers Union (UNIDA) reports that Brazilian government should
According to Bill # 12.999/14, the amount of R$ 170 million will be paid to sugarcane growers from the Northeast affected by one of the most severe drought in the past decades. Approximately 23,000 growers will be eligible for a Regional Producer Subsidy. The release of the funds depends on President Dilma Roussef’s signing a provisional measure (“Medida Provisoria”) which has not occurred yet.
2.1.2. Ethanol use mandate
As of May 1, 2013, the ethanol content blended to gasoline is set at 25 percent, according to Resolution # 1 from February 2013, of the Sugar and Ethanol Interministerial Council (CIMA). Earlier in 2014, the Sugar and Alcohol Millers Association of São Paulo State (UNICA) requested the increase of the blend to 27.5 percent. GOB has conducted technical studies led by Petrobras, the Brazilian oil company, and should announce results in late September. However, if recommended by the studies, it is unlikely that the new blend would become effective in 2014.
The National Association of Motor Vehicle Manufacturers (ANFAVEA) reports that further increases in the blend would hurt the performance of engines designed to be powered exclusively by gasoline.
2.1.3. Tax incentives for ethanol
A. Tax incentives for ethanol-flex fuel vehicles
Note that taxes on flex cars are lower than taxes on gasoline powered cars, especially with regard to the IPI. From May 2012 through December 2013 temporary tax reductions were authorized by GOB.
B. Tax incentives for ethanol fuel
The CIDE (Contribution for Intervention in Economic Domain) value remains at zero for both ethanol and gasoline.
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. In May 2013, through Provisional Measure # 613, the GOB created a PIS/CONFINS presumed credit for the ethanol industry which in practice dropped to zero the R$0.12/liter (R$0.048/liter on producers and R$0.072/liter on distributors) that applies to the product. On December 2013, GOB through Provisional Measure # 634, also extended the zero tax applied to PIS/COFINS to all imported ethanol, including ethanol for fuels.
No changes have been made to the ICMS - State tax for circulation of goods and services. There are different tax regimes depending on the Brazilian state. 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 March 2014, the Brazilian Government announced the continuity of the Prorenova for 2014, a credit line of R$3 billion (approximately US$ 1.25 billion) available to finance the renewal and/or expansion of sugarcane fields. The interest rate is set at the “long term interest rate” (TJLP) plus 2.7 percent per year. BNDES set a limit of R$ 6,500 to finance each hectare planted to sugarcane and the total limit of R$ 150 million per ficancial group.
BNDES also announced the continuity of the credit line (R$ 2 billion) to support ethanol storage (PASS program) for 2014. The interest rate is set at the “long term interest rate” (TJLP) plus 2.7 percent per year. The reference price is set at R$ 1.50/liter of anhydrous ethanol and R$ 1.35 for hydrous ethanol.
2.1.5. Ethanol Import Tariff
No changes have been made to the ethanol import tariff which remains zero up to December 31, 2015, according to Resolution #94 of the Ministry of Development, Industry and Commerce (MDIC)/Chamber of Foreign Trade (CAMEX).
2.1.6. Ethanol Supply Contracts
No changes have been made to the ethanol supply contracts set by the National Agency of Petroleum, Natural Gas and Biofuels (ANP). 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 and buy the product on a monthly basis (direct purchase), 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 was set at 5 percent (B5) up to July 31st 2014. Provisional Measure 647 from May 29th, 2014, set the new biodiesel blends to diesel at 6 percent (B6) as of July 1st, 2014, and 7 percent (B7) as of November 1st, 2014. The increase of the biodiesel blend has been a longstanding request from industry given that industrial capacity is more than 2 times actual production goals.
2.2.3. 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. Transport Fuel Consumption
Transport fuel projections assume a 2.5 percent growth rate in the Brazilian Growth Domestic Product (GDP). Sales by fuel distributors as informed by ANP for 2013 and January-May 2014 are used as baseline for projections. No information is available for diesel use breakdown.
Ethanol is an alcohol made by fermenting sugar components of plant materials such as corn and wheat starch, sugarcane, sugarbeet, sorghum, and cassava.
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 2014/15 Brazilian sugarcane production at 629 million metric tons (mmt), down 21 mmt from MY 2013/14. The center-south (CS) region is expected to harvest 575 mmt of sugarcane, a 4 percent decrease from the previous season, due to projected lower agricultural yields as a result of irregular weather conditions (drought) and below average replanting of sugarcane. Post projects the North-Northeastern (NNE) production for MY 2014/15 at 54 mmt, similar to MY 2013/14.
Total sucrose (total reducing sugar, TRS) content destined for sugar and ethanol production during MY 2014/15 is estimated at 46.5 and 53.5 percent, respectively. The revised sugar-ethanol mix for MY 2013/14 is 45.5 and 54.5 percent. Sugar-ethanol mills are expected to divert more sugarcane to sugar in the upcoming crop. The industry is expected to comply with the sugar export contracts and guarantee enough anhydrous ethanol production to blend with gasoline. Hydrated ethanol production will be the last option pursued by millers due to lack of profitability.
It is early to predict MY 2015/16 production. More accurate numbers should be available in the first quarter of 2015 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. 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 2015/16 at 660 mmt, a 5 percent increase compared to the current crop, assuming historical stock renewal rates and agricultural yields.
ATO projects 2015 total ethanol production at 26.9 billion liters, up 5 percent from 2014 (25.6 billion liters). Ethanol for fuel production is forecast at 23.8 billion liters for 2015, a 1.3 billion liter increase over 2014.
B. Industrial Capacity
ATO/Sao Paulo has adjusted total industrial capacity for sugarcane crushing to 3.35 million metric tons/day, down 2 percent from previous crop, to reflect the reduction in the number of ethanol and sugar-ethanol plants in operation.
Ethanol production capacity for 2015 is forecast at 39.7 billion liters, equivalent to revised figure for 2014. This figure reflects the lower number of ethanol and sugar-ethanol plants in operation.
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. On average, one metric ton of sugarcane produces about 80.5 liters of ethanol.
C. New Investments/Shut Down of Ethanol Plants
Total number of sugar-ethanol mills in 2014 is estimated at 390 units, whereas total operating units for 2013 was 399. Investments in new greenfield projects remain scarce. UNICA estimates only one new plant for 2014/15. Concurrently, several units have been closed in the past couple of years mainly due to financial constraints. UNICA projects that 10 units should close operations this season. Note that some of the units have been acquired by larger and financially healthy groups.
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 state of Sao Paulo Sugarcane, Sugar and Ethanol Growers Council (CONSECANA) price for the current crop (MY 2014/15) for the April-May 2014 period is R$0.4697 kg of TRS, or approximately R$58.46 ton of sugarcane. CONSECANA reports that the average sugarcane price for the state of Sao Paulo for the 2013/14 crop is R$0.4572 per kg of TRS, or R$60.96 per ton of sugarcane.
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.
Brazil is an important user of ethanol for fuel consumption. Total domestic demand for ethanol for calendar year 2015 is forecast at 26.6 billion liters, a 4 percent increase relatively to 2014, based on likely higher supply. Total ethanol consumption for use as fuel is estimated at 24.2 billion liters for 2015. Ethanol consumption for other uses is projected at 2.4 billion liters, up 50,000 liters compared to 2014 due to steady demand from the chemical industry.
The size of the Brazilian light vehicle fleet was estimated at over 33 million units in 2013 and pure hydrous ethanol and flex fuel powered vehicles together represent approximately more than 55 percent of the total fleet. Industry projects that the share of flex fuel vehicles is likely to reach over 80 percent by 2020.
Sales of FFV currently represent over 95 percent of total monthly vehicle sales.
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). Note that the crushing period in the center-south started in April/May, but gasoline prices still remained competitive in June 2013 in several Brazilian states.
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 total ethanol exports for 2015 are forecast at 1.8 billion liters, up 200 million liters from 2014. Total 2014 fuel ethanol exports are projected at 900 million liters.
Brazilian total ethanol imports for 2015 are projected 440 million liters, almost exclusively for fuel use.
3.5. Ending Stocks
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 5.56 billion liters for 2015, down 1 billion liters from 2014. 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 season, while 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
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 customer requirements.
The Ethanol – Other Uses 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.
Biodiesel is a trans-esterified vegetable oil also known as fatty acid methyl ester produced from soy oil, cottonseed oil, rapeseed, oil, other vegetable oils, animal fats, and recycled cooking oils.
Biodiesel can be produced from several raw materials such as soybeans, cottonseed, animal fat, castor seed (Ricinus communis), African palm oil (“dendê”), “pinhao manso” (Jatropha curcas), sunflower, peanut, fried oil or others.
According to updated information reported by the Petroleum, Natural Gas and Biofuels National Agency (ANP), soybeans currently represents 76 percent of total biodiesel feedstock, followed by animal tallow (20 percent) and cottonseed (1 percent).
B. Production Estimates
Biodiesel production remains regulated by the government. In 2015, total Brazil biodiesel production is forecast at 4.392 billion liters, a 25 percent increase compared to revised estimate for 2014 (3.5 billion liters). The projection takes into account the increase of the mandatory biodiesel blend to 6 percent as of July 1st, 2014 and 7 percent as of November 1st, 2014.
Biodiesel production in 2013 was 2.92 billion liters, as reported by ANP. Cumulative January-March 2014 production is approximately 745 million liters.
ANP reports that as of May 2014, Brazil has 62 plants authorized to produce biodiesel. Current authorized industrial capacity is estimated at 21.8 million liters/day or approximately 7.85 billion liters/year, based on a 360 day operation cycle. This represents approximately 2.25 times the mandatory biodiesel production to be blended in mineral diesel in 2014; and a 2 percent increase compared to the authorized industrial capacity for the same period in 2013 (21.4 million liters/day).
ATO/Sao Paulo projects industrial capacity for 2014 and 2015 at 64 and 65 plants, respectively, or 8.3 billion liters per year in 2015, up 6 percent from current industrial capacity. 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 which gives preference to producers with the Social Fuel Stamp. The Social Fuel Stamp provides incentives for poorer farmers (family farmers) in disadvantaged areas.
Additional auctions should take place in the upcoming months to guarantee supply for the remaining months of the year.
Biodiesel prices received by producers are determined by the public auction system. 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.
Industry sources report that raw materials represent approximately 70 to 80 percent of biodiesel production cost. Given that roughly 73 percent of biodiesel production still results from the use of soybean oil, the profitability of the sector is highly dependent on oilseed prices.
The average crude price in the state of Sao Paulo is R$2,253.88/ton for January-April 2014, a 10 percent drop compared to the same period in 2013 (R$2,505.75/ton).
Biodiesel domestic consumption remains regulated by GoB, thus the sector must comply with the biodiesel mandate which requires all mineral diesel to have a six percent biodiesel blend (B6) as of July 2014 and seven percent (B7) as of November 1 2014. Based on industry projections for mineral diesel domestic demand, ATO/Sao Paulo forecasts total biodiesel domestic consumption for 2014 and 2015 at 3.41 and 4.34 billion liters, respectively.
Biodiesel consumption for 2013 is estimated at 2.9 billion liters based on mineral diesel consumption of 58.49 billion liters and the mandatory mixture of five percent (B5) during 2013.
No import has been registered under tariff code NCM 3826.00.00.
ATO/Sao Paulo forecasts biodiesel ending stocks for 2015 at 84 million liters, similar to 2014 (82 million liters), based on the difference between total supply and disappearance (consumption and exports).
5. Advanced Biofuels
Brazil has no commercial use of advanced biofuels yet. Granbio has announced recently that its plant located in Alagoas should start producing advanced ethanol from sugarcane in 2014, but full capacity production (82 million liters) should be reached only in 2015.
In July 2014, the National Bank for Social and Economic Development (BNDES) announced a total of R$ 1.9 billion (approximately US$ 860 million) credit line under the “Paiss Agricola” program to fund agricultural research (genetic modified plants, sugarcane seeds to replace current feedstocks used for plantin, mechanization, etc), and development for the sugar-ethanol sector, including investimets in advanced biofuels.
Updated information from the industry reports the following second generation projects in Brazil for 2014 thorugh 2015:
A. Three commercial plants in operation:
• In 2014 – one plant in the state of Alagoas with projected annual production of 82 million liters);
• In 2014 – one plant in the state of Sao Paulo with projected annual production of 40 million liters);
• In 2015 – one plant in the state of Goias with projected annual production of 40 million liters);
B. Two demonstration plants:
• In 2014: one plant in the state of Sao Paulo with projected production of 3 million liters
• In 2016: one plant in the state of Mato Grosso do Sul with projected production of 3 million liters
6. Notes on Statistical Data
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).
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. Note that on average, one metric ton of sugarcane produces 80.5 liters of ethanol.
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 trrough B7) 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