Ethanol Prices to Rise and Fall as per the State Implied Taxes and Programmes

The global ethanol price was around USD 1.23 per litre during first week of August 2022. Nevertheless, the prices are considerably different among various nations. Generally, the more affluent nations have elevated prices compared to the weaker countries as well as the nations that manufacture and export oil have substantially lesser prices.

The trend is that the disparities in prices throughout several nations are because of the different taxes and subsidies for gasoline and other programmes introduced by the governments.

In the US the price of ethanol on August 1st, 2022, was at USD 0.911 per litre, while in Brazil and France the prices were USD 0.834 and USD 0.850 per litre, respectively.

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The Brazilian government authorised a law that regulates the ICMS tax levied on fuels at the rate of 17% to 18% and decreased the CIDE, Cofins, and PIS taxes on ethanol and gasoline to Real 0/cu m. The regulation that restricted the ICMS tax became effective from June 27, 2022, and the modified Cofins, PIS and CIDE taxes came into effect from June 23, 2022.

In Brazil, there has been a gradual dip in the attractiveness of hydrous ethanol as compared to gasoline at the fuel station from the beginning of May 2022, as a result of the discounted prices which was mainly due to the planned drop of states and federal taxes.

Since the ICMS tax is limited at 17% to 18% would raise affordability factor of gasoline in comparison to ethanol in several regions of Brazil and would eventually lead to the ethanol prices to decline in the upcoming period.

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Presently, the Biden Administration and the Environmental Protection Agency (EPA), in the United States thought to call for a greater volume of ethanol to be mixed with gasoline in an attempt to boost its domestic supply of fuel and reduce the prices of gasoline.

Hence, there has been a steady hike in the ethanol prices this year which has been pushed by the Biden Administration directive to mix more biofuel with gasoline as well as one of the biggest consumer inflations in the United States in the last ten years.

Additionally, the price of the corn-based fuel, ethanol, which a general additive in gasoline, has increased by 14% so far in the present quarter and has outpaced crude oil prices. In the meantime, the average price per gallon of unleaded gasoline in the United States has also lately reached its peak.

Up to this point, corn prices have increased to 14% and reached a record height in 2022, primarily due to the war situation between Russia and Ukraine since these countries are the top exporters of grain. Another reason is the unfortunate harvests in South America and wet and cold planting season in the United States. As per the analysts, issues regarding a probable recession have also had a repercussion on the prices of corn in the current scenario.

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The prices of ethanol in the United States may come down in a situation where the consumer demand for gasoline decreases and the prices for corn do not shoot up further. President Biden has asked for the postponement of federal gasoline and diesel taxes for a three-month period, which would need for an approval from the Congress.

For the moment, market experts and investors are observing the corn crop cultivation this year. This is mainly because the weather conditions have tormented the corn planting process in the United States and South America, building on to the stiff supply and pressuring to increase the prices additionally.

There has been a steady rise in the consumption of ethanol, a source of fuel developed by using fermented sugars included in wheat and maize, in France ever since it has come to use from 2007 onwards, essentially because of its advantageous price.

France is facing record high prices of fuel because of Russia and Ukraine war leading to the cost mindful motor bike drivers to turn towards other substitute sources of fuel, with sales of E85, which is a blend of bioethanol 85% and petrol, increasing drastically in France. In April 2022, E85 super ethanol fuel symbolised 6.2% of the total fuel market in France, which is a double of the market share during 2020.

An agronomic dynamo, France, is one of the greatest advocates of ethanol in the European Union, with the French administration presenting decreased fuel tax levied on E85, in addition to the governing methodology that offers incentives to the sale of high-pitched blends of fuel.

As per Procurement Resource, “Ethanol prices are anticipated to rise and fall in the upcoming months as the current situation of the worldwide ethanol market is primarily driven by the government regulated taxes and programmes.

This is primarily since ethanol prices have direct impact on gasoline and other biofuels. Hence, due to these tax changes and other bills passed in some of the major ethanol producing countries, the ethanol price may come down (example Brazil) or may increase (example the United States) in the upcoming months.”