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| SAO PAULO (Dow Jones)--Prices for Brazilian ethanol strengthened strongly last week as supply remains tight, according to industry analysts on Monday.
Mike McDougall, a senior vice president at Newedge USA, said that the recent rains continued to restrict the sugarcane harvest and the yields in Brazil's main center-south sugarcane belt, which means less cane to crush into ethanol.
This combined with mills continuing to prioritize sugar and strong demand from Brazil's fleet of flex-fuel cars, that can switch between ethanol and gasoline, is helping to strengthen ethanol prices, McDougall said.
Brazil's Center for Advanced Applied Economic Studies, or Cepea, said hydrous ethanol, a gasoline substitute, rose to 0.89 Brazilian real ($0.50) per liter between Sept. 28-Oct. 2 without taxes or freight costs in Sao Paulo state compared to BRL85 per liter the week before.
Cepea said anhydrous ethanol, a gasoline additive, rose to BRL1.03 per liter last week compared to BRL0.97 per liter the week before.
Bruno Lima, a risk consultant at FCStone in Campinas, said that Brazilian ethanol prices per liter remain at around 60% of the price of gasoline at gas stations in Sao Paulo state.
Lima warned that if ethanol prices climb further to around 70% of gasoline prices, then customers will begin to switch to gasoline, which gives better mileage.
"Ethanol prices don't have much more room to rise," he said.
The dry weather in the last few days may also put the brakes on price increases this week of the alternative fuel as mills can harvest and crush their cane, he said.
Still, more rain is expected and this will hinder the harvest, he said.
The inter-harvest period in Brazil's main center-south region traditionally starts in late December or January.
Brazil is the world's No. 1 sugarcane-based ethanol producer and exporter.
-By Tony Danby; Dow Jones Newswires; 55-11-2847-4523; [email protected]
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Interesting chart with Corn and Ethanol
