Gasoline Tax Hike Would Be Boon for Brazil’s Ethanol Producers

Source: By Fabiana Batista, Bloomberg • Posted: Wednesday, May 18, 2016

Brazil’s ethanol producers may get a boost as the government is said to be mulling a higher gasoline tax as it looks to reduce the nation’s widening fiscal deficit.

Finance Minister Henrique Meirelles is considering raising the so-called Cide tax on gasoline prices as an alternative to reinstating taxes on financial transactions, Brazilian newspaper Folha de S. Paulo said Tuesday, without citing where it got the information. Any discussion on possible tax increases is still premature as the government is still assessing the country’s financial issues, Meirelles told reporters in Brasilia, less than a week after being appointed to the role.

A potential increase in the Cide tax on gasoline to 0.60 real a liter (17 cents) from 0.10 real (3 cents) as suggested by sugar-cane millers would help boost demand and increase ethanol prices by as much as 25 percent, according to Antonio de Padua Rodrigues, technical director at industry group Unica. At those prices, mills would divert more sugar-cane to making biofuel rather than sugar, he said.

In Brazil, most cars can run on gasoline or ethanol. Traditionally, drivers choose ethanol to fuel their cars when it’s less than 70 percent of the price of gasoline, as the biofuel extracted from sugar cane yields about 30 percent less energy per liter.

Ethanol output in Brazil’s Center-South region, where most of Brazil’s sugar and ethanol is produced, is expected to be between 27.5 billion and 28.7 billion liters in the 2016-17 season, on par with last season’s 28.2-billion level, as sugar prices remain more attractive, according to Unica. Still, average ethanol prices are expected to remain above last season’s levels, Rodrigues said in a phone interview from Sao Paulo.

Michel Temer, who took over as Brazil’s acting president last week as Dilma Rousseff faces an impeachment trial, has been moving quickly to put in place an economic team to renew investor confidence. Ethanol producers haven’t started talks with the new government on fuel taxation but expect to begin discussions “soon,” Luis Roberto Pogetti, chairman at ethanol and sugar trader Copersucar SA, said Tuesday in phone interview.

Cosan SA, co-owner of the world’s largest sugar-cane processor with Royal Dutch Shell Plc, rose 3.2 percent to close at 35.25 reais in Sao Paulo, the highest since October 2014.