By Raymond Colitt –
Growing global demand for cleaner vehicle fuels and the possibility of falling farm subsidies in Europe have sparked several investments in Brazil’s ethanol industry.
Brazilian and foreign investors are set to invest as much as $3bn (€2.3bn, £1.6bn) over the next five years to increase ethanol production by 40 per cent, according to Unica, the São Paulo sugar cane federation. Current ethanol production is about 15bn litres a year.
Antonio de Padua, Unica’s technical director, says 40 plants are to be built by 2009, each costing about $80m. A dozen are already under construction, he says.
“This is the beginning of a massive investment cycle in the sector,” said Clayton Miranda, president of Coimex, a commodities trader that is investing $50m in a new plant.
Huge water and land supplies help make Brazil the world’s largest, cheapest producer of ethanol, derived locally from sugar cane. Production costs for one cubic metre average $160, says FNP, an agricultural consultancy in Sa~o Paulo. In the US corn-based ethanol costs roughly 40 per cent more and Europe’s beet-based ethanol roughly double.
With far lower emission levels than hydrocarbons, demand for ethanol is expected to surge, with many parts of Europe, Asia, and the Americas legislating for ethanol or other clean fuels to be mixed into petrol. In Brazil, ethanol makes up between 25 per cent and 100 per cent of automotive fuel.
“Ethanol is becoming a global commodity and Brazil is its most competitive producer,” says Luiz Guilherme Zancaner, president of Unialco, a cane distiller and refiner.
With the prospect of falling farm subsidies, European investors are moving into Brazil. Earlier this year Louis Dreyfus, the French agricultural group, bought its third sugar cane processing plant in Brazil and “has further growth plans” there, according to Fernando de Moraes, vice-president of Coinbra, its subsidiary.
Tereos, another French group, recently spent R$100m ($36m, €28m, £19m) to boost its ethanol output from 75m litres in 2004 to a projected 110m in 2006. “Everybody wants a foothold in Brazil before the subsidies go,” says Alberto Klumb, chief financial officer with Tereos’ local Guarani Acucar unit.
Germany’s Südzucker says it, too, is considering investments in Brazil.
The high international oil price has fuelled interest in ethanol. “Ethanol is extremely attractive at $30 a barrel of oil. Imagine at $50,” says José Vicente Ferraz, partner at FNP.
Brazilians are also beginning to work around tariff barriers, still the largest obstacles to exports. Coimex recently installed an ethanol plant in Jamaica and will begin exporting it to the US in February under a scheme of trade benefits granted to Caribbean countries.
Source: Financial Times