In a scenario of gradual and consistent recovery in demand for ethanol, Brazil may see a tightening of supply and a rise in prices in the second half of 2020, says the sugar and ethanol specialist at Rabobank in the country, Andy Duff. In a podcast published by the bank on Friday, he recalls that, because of the pandemic, not only fuel consumption decreased but also ethanol production, as the plants prioritized the production of sugar in the 2020/21 harvest.

The bank projects a loss in demand for biofuel at the end of the current season of around 3.5 billion liters compared to that recorded in the 2019/20 harvest. Meanwhile, the retraction in the production of plants in the Center-South would be 6 to 7 billion liters on the same comparative basis, due to the more sugar mix of the 2020/21 harvest. The calculations consider, according to the analyst, a gradual recovery of consumption until November, when it would return to the level of November 2019.

"In this scenario, the drop in consumption is much smaller than projected for production. Therefore, there is a possibility of a tightening between supply and demand until the last quarter of this year, which would improve ethanol prices in the current harvest. "said Duff on the podcast. He added that, in order for the estimated retraction in consumption to be equal to that projected for production, the market would need to observe a 30% drop in demand for fuels from March to December.

The sector, which was one of the most affected by the pandemic in Brazilian agribusiness, should pay close attention to the development of biofuel prices and to consumption prospects in the coming months, says Duff. According to him, although there is a consensus that the 2020/21 harvest will be more sugary, the variables in the ethanol market cannot be ignored either.