Cargill Inc, the US-based agriculture conglomerate, on Thursday said it plans to become a major exporter of Brazilian cane-based ethanol as world demand for the fuel and Brazil's sugarcane crop grow.
The company, responsible for a large part of Brazil's sugar exports, plans to install a dehydration plant in the Caribbean to avoid a tariff on ethanol imported into North America.
"We are preparing to operate on this market," Francisco Vassellucci, director of trade in Brazil for Cargill Sugar, said in an interview. "There is a growing demand for ethanol and there is no way we can sit on the sidelines."
Ethanol is an alcohol-based alternative fuel that can be produced from plants like sugarcane and corn. It is used to increase octane and improve the emissions quality of gasoline, possibly reducing dependence on crude oil.
Demand for ethanol in the United States has grown vigorously since the petroleum-based oxygenate fuel additive MTBE began being phased out of the gasoline supply because of its threats to human health and the environment.
With the growing US market for ethanol in view, Cargill with partner Crystalsev began planning to install a dehydration plant in the Caribbean that would convert hydrous ethanol to anhydrous.
The anhydrous ethanol, if distilled in the Caribbean, would be free of a 54 cent/gallon tariff that is put on the fuel if it enters the North American market directly from Brazil. The tariff makes ethanol imports into the United States not viable, Vassellucci said.
Cargill and Crystalsev have found a site and will invest roughly $8 million by the end of 2004, when the plant will go online. In the first phase, the plant will be able to process 240 million litres a year, Vassellucci said.
The largest privately held US company already produces corn-based ethanol in the United States and distributes the fuel in Europe and Asia.
In Brazil, the company aims to export 100 million litres of ethanol this year, of which a large part has already been acquired from mills in the centre-south.
"We account for 23 percent of Brazil's sugar exports. Now we're going to position ourselves to take a slice of the ethanol market," Vassellucci told Reuters.
The moment is right for the product - especially Brazilian cane ethanol, which is far cheaper to produce than corn- or grain-based ethanol. Cane ethanol is cheaper to produce than gasoline if oil is above roughly $20 a barrel.
World oil prices neared $40 a barrel this week on concerns about possible supply interruptions due to terrorist attacks of major world exporters such as Saudi Arabia, when world demand is strong, especially from China.
With no expected sharp rise in world sugar demand and a record crop on the way, mills in the centre-south plan to export between 1.2 billion and 1.5 billion litres of ethanol this year compared with 650 million last season.
Brazilian ethanol output is seen at 13.3 billion litres in the centre-south, which accounts for 85 percent of Brazil's cane. About half of the yearly cane crop is refined into sugar and the rest goes to ethanol production.
The New York Board of Trade's new ethanol contract, which is expected to increase hedging opportunities as well as prospects for arbitrage trading with the sugar market, begins futures trading on Friday.
"The demand is surging more frequently and from various places and not just for industrial ethanol but also for fuel," Vassellucci said.