Ethanol x Gas X Sugar - Some thoughts in Supply & Demand

Ethanol x Gas X Sugar
Some thoughts in Supply & Demand
Marcelo Pierossi
Economic Issues, Food & You - Coursera 2013

Journey Entry
10 - Relationship between ethanol and gasoline in Brazil reaches
71.73% (In portuguese)
The article below is from an important brazilian newspaper and comments
about the price relationship between ethanol for fueling vehicles and gasoline.
In Brazil, we have the option to use both fuels, because our cars are flex fuel
cars and are able to run with any mix of both fuels. But one issue important is
that the energy content from ethanol is 70% of energy content of gasoline, so
this ratio is the maximum value for using ethanol instead gasoline. And
because ethanol is a agribusiness product with a large seasonal content, time
of the year is other important issue in the equation: Ethanol or Gasoline?
• What are the factors affecting this ratio?
• This kind of relationship pushes towards market perfection?
• How price is affected by supply and demand law?
http://economia.estadao.com.br/noticias/economia-geral,relacao-entre-etanol-
e-gasolina-em-sp-atinge-7173,148563,0.htm
© Marcelo Pierossi - 2013

Brazilian Sugarcane Production

Brazilian Sugarcane Mills
Flexible operation: Sugar and Ethanol (from 40 to 60%)

Production Mix
• Production defined by Prices
• Sugar Prices – International Prices
• Ethanol Prices – Domestic Market
 Gas – competitor (every gas station has both)
 70% of energy content compared with Gas

Domestic Sugar S&D
Amortgui, H. - A PROSPECTIVE ANALYSIS OF BRAZILIAN BIOFUEL ECONOMY:
LAND USE, INFRASTRUCTURE DEVELOPMENT AND FUEL PRICING POLICIES – UIUC, 2012

Sugar International Market
World raw sugar price, ICE Contract 11
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Dec-99 Apr-01 Sep-02 Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13 Dec-14
Centsperpound

Sugar Domestic Market

Flex Fuel Engines
• A flexible-fuel vehicle (FFV) or dual-fuel vehicle (colloquially called
a flex-fuel vehicle) is an alternative fuel vehicle with an internal
combustion engine designed to run on more than
one fuel, usually gasoline blended with either ethanol or methanol
fuel, and both fuels are stored in the same common tank.
• Modern flex-fuel engines are capable of burning any proportion of
the resulting blend in the combustion chamber as fuel
injection andspark timing are adjusted automatically according to the
actual blend detected by electronic sensors.

Flex Fuel Cars
• Evolution of the numbers of flex fuel cars
in Brazil (a graph will be added)

Domestic Ethanol S&D
Amortgui, H. - A PROSPECTIVE ANALYSIS OF BRAZILIAN BIOFUEL ECONOMY:
LAND USE, INFRASTRUCTURE DEVELOPMENT AND FUEL PRICING POLICIES – UIUC, 2012

Ethanol Domestic Market

Gas Prices
Source: Financial Times
http://www.ft.com/cms/s/0/
00d4d8ee-8603-11e2-
bed4-
00144feabdc0.html#ixzz2S
VwhAOwa

Gas Prices
Source: Bloomberg
http://www.bloomberg.com/
news/2013-01-
17/petrobras-gasoline-
price-rise-undecided-on-
inflation.html

Gas International Prices
Source: Petrobrashttp://www.petrobras.com.br/en/products/price-composition/

Gasoline Market
• Importation

Petrobras Market Value
Source : Bovespa

Ethanol vs Gasoline vs Corn USA
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Corn $ / bu.
Ethanol $ / gal.
Gasoline $ / gal.

Bankruptcy of sugar mills in Brazil

Some remarks

Conclusions

Ethanol x Gas X Sugar - Some thoughts in Supply & Demand

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