BRAZIL: RenovaBio should improve ethanol competitiveness, says UNICA

April 17, 2017

Sugaronline |

Brazil's RenovaBio, a program being prepared by the Federal Government to incentivize the use of biofuels domestically, should be successful to improve ethanol competitiveness versus gasoline, said the chairman at sugarcane industry association UNICA, Pedro Mizutani, according to Brazil's BTG Pactual investment bank.

"Mr. Mizutani seems confident that the government will shortly unveil the details of the RenovaBio program, with mechanisms that properly address the negative externalities of non-renewable fuels, and therefore improve the economic competitiveness of ethanol versus gasoline, enabling Brazil to achieve its environmental goals by further expanding ethanol output", analysts at BTG Pactual investment bank said in a report published Thursday.

Mizutani said during BTG's I Commodities Conference he believes that the target to produce 50 billion litres of ethanol by 2030 may be too aggressive, but that Brazil can achieve 40 billion litres if the right incentives are provided. Last year, the country produced 28 billion litres of the biofuel.

The tax burden on ethanol compared to gasoline in Brazil is 7 percentage points higher than it was 15 years ago, he said.

The sugarcane sector has currently BRL100 billion (US$31.8 billion) in total outstanding debt, equivalent to BRL152 (US$48.3) per tonne. This means the sector spends about 15% of its net revenues on interest expenses alone, and cash generation is only positive for companies with EBIT margins above that level -- which is only a small slice of the industry, according to BTG Pactual.

Mizutani added that sugarcane crush in Brazil's centre-south during the 2017/18 season could be 10 million to 20 million tonnes below total grinding in 2016/17, but UNICA hasn't released official estimates yet.