|
|
Brazil's once booming ethanol sector hits brakesSAO PAULO, Brazil (AP)--Brazil's biofuel industry just months ago was being flooded with billions in new investments for vast new sugarcane plantations and gleaming distilleries that churn out the cheapest ethanol on earth. But the global financial crisis has put the brakes on that boom, drying up foreign investment and domestic credit, stalling new projects and prompting cash-strapped ethanol producers to indefinitely postpone expansions. "I'm still ready to play ball, but the ball disappeared," said former Brazilian Agriculture Minister Robert Rodrigues, whose plans for an ethanol startup were recently put on hold as foreign investors withdrew cash amid fears that a global recession would slow demand for fuel. Heavily leveraged small and mid-sized ethanol operations are likely to be bought out by their larger counterparts, if emergency credit lines from state-owned banks aren't enough to stave off crushing debt obligations, participants at a biofuels conference in Sao Paulo in mid-November said. One large ethanol maker filed for bankruptcy recently to restructure $100 million in debt it could not pay. Analysts and sugarcane growers predict others will follow, and a leading industry association says 50 percent of new equipment orders have been canceled or postponed. "We're going to see more bankruptcies," said Eduardo Carvalho, director of the ethanol and sugar unit of conglomerate Odebrecht SA, one of Brazil's biggest companies. Some $30 billion to $40 billion in investment that was expected in the industry over the next four years will be slashed, Marcus Jank, president of Brazil's powerful Sugar Cane Producers Association, said without giving details. Brazil's biofuel industry, born in the 1970s and concentrated in sugarcane-rich Sao Paulo state, has long been considered a global model, and its method of producing ethanol from sugarcane is cheaper and more efficient than rivals, including the U.S., who use corn. John Melo, chief executive of U.S.-based Amyris Biotechnologies, said Brazil's ethanol industry will survive because of strong domestic demand and because international demand for cheap renewable fuels will rebound with oil prices. Amyris has teamed with Brazilian producers in a joint venture that could produce 1 billion gallons of sugarcane-diesel a year by 2015. The Brazilian and U.S. governments are meanwhile funding research and development projects to spur ethanol startups throughout Latin America, but the financial crisis will inevitably delay private sector investment, U.S. Secretary of Agriculture Ed Shafer told The Associated Press. Most new sugarcane mills cost about $200 million, and crush as much as 2 million metric tons of cane a year, producing up to 160 million liters of ethanol. The full extent of the damage to one of Brazil's most promising export industries is still unknown: The sector is dominated by private companies owned by wealthy families who have attracted foreign partners but are not required to report their finances publicly. But no one expects Brazil to lose its place as the world's biggest ethanol exporter and second largest producer after the U.S.--where industry losses appear even more severe. With oil below $50 per barrel, down more than 60 percent since July, biofuels have become less competitive. But U.S.-made corn ethanol is more expensive than Brazil's sugarcane-based fuel: Oil must top $50 a barrel for it to be cheaper than gasoline. In contrast, Brazilian ethanol kingpins insist, their fuel is competitive as long as oil sells for more than $40 a barrel. Brazil's strong domestic market will soften any blow to the industry if global demand for ethanol falls. The country started manufacturing ethanol-only cars in the 1970s, and "flex fuel" cars introduced in 2004--which run on ethanol, gasoline or any combination of the two--now make up nearly nine of every 10 cars sold. And because state-run oil company Petroleo Brasileiro SA sets gasoline prices, ethanol in Brazil typically sells for nearly half the price of gas, making filling up a no-brainer. "The only thing that could kill the sector would be the suspension of flex-fuel car production, and that won't happen," said Christoph Berg, managing director at German commodities research firm F.O. Licht. Investment could rebound if long-disputed U.S. and European tariffs on Brazilian ethanol are eliminated--but that doesn't seem likely anytime soon. European Energy Commissioner Andris Piebalgs said he anticipates no cuts to the EU's 0.19-euro-per-liter tariff, barring a breakthrough in the so-called Doha Round of trade talks by the World Trade Organization. And U.S. President-elect Barack Obama has in the past suggested he opposed eliminating the United States' $0.53 per gallon tariff on Brazilian ethanol. "As it relates to our country's drive toward energy independence, it does not serve our national and economic security to replace imported oil with Brazilian ethanol," Obama said on the Senate floor last year.
Date: 12/19/08
Copyright/Privacy
Copyright 1995-2011. High Plains Publishers, Inc. All rights reserved. Any republishing of these pages, including electronic reproduction of the editorial archives or classified advertising, is strictly prohibited. If you have questions or comments you can reach us at High Plains Journal 1500 E. Wyatt Earp Blvd., P.O. Box 760, Dodge City, KS 67801 or call 1-800-452-7171. Email: webmaster@hpj.com |
|
