BRASILIA: Fall in oil prices has heightened the risk for Brazil’s sugar and ethanol industry, according to Fitch Ratings. The price drop has eased the pressure on Petroleo Brasileiro S.A – Petrobras (IDR BBB / Nat. Scale AAA(bra)) to increase domestic gasoline prices, which reduces demand for alternative fuels.
Brazilian S&E producers need hikes in ethanol prices to make up for low sugar prices in international markets, but material increases in the price of the biofuel are only possible if accompanied by higher gasoline prices at the pump. While Fitch does not expect significantly lower gasoline prices at the pump, price increases remain very unlikely in the short-term.
The recent plunge of international oil prices has brought international gasoline prices to levels below Brazil’s refinery prices. Petrobras’ domestic gasoline prices are now above international benchmarks. This eliminates the company’s downstream losses caused by selling gasoline and diesel at below-market prices and eases pressure to increase gasoline prices in 2015.
