# Are the US replacing Brazil on the worldwide ethano l market?

A new player in the game:

Exacerbated by the “10% blend wall”, the US product ion overcapacity has forced ethanol producers to modify their specifications, l ogistics and sustainability provisions to compete with Brazil on the export mar kets. Since Q4 2009, US ethanol has been the main price driver of the EU et hanol market. This should continue during 2011 despite the RED certification requirements... as long as there is enough corn to produce it !

The US ascension to the role of the new World Ethan ol Supplier was also helped by the slow disappearance of Brazilian ethanol. The exponential growth of the Brazilian domestic consumption has relegated export s to the 3rd division. In 2006/07, Brazil exported 22% of its production comp ared to our prediction for 2010/11 of only 6%. Strong ethanol consumption, str ong sugar prices and potentially less sugarcane than initially expected may cause a repeat of the 09/10 price spike. 

## November 2010 

# Ethanol Report

Ethanol prices base 100 in Jan. 2009

75 95 115 135 155 175 195

jan v. -0 9 févr.-0 9 ma r s- 0 9

a vr .- 0 9
m a i-0 9 jui n- 0 9 juil.-0 9 août-09 se p t. -0 9 oct.-09 no v.-09

d é c.- 0 9 jan v.- 1 0 fé vr .- 1 0 ma r s -1 0

a vr. - 10
m ai- 1 0 juin - 10 juil .-1 0 ao û t-1 0 se pt.-10

o ct. -1 0 Europe
Brazil
US

### 2 

# 1. WORLWIDE- Overview up to 2011

Worldwide demand growing steadily

0 20 000 40 000 60 000 80 000 100 000 120 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 *1000 m3/year

EU US Brazil Others

31%

32% 30%

49% 17%

29%

9%



### Increasing worldwide supply – but slower in 2011

0 20 000 40 000 60 000 80 000 100 000 120 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 *1000 m3/year

EU US Brazil Others

36%

30% 28% mainly from Sugarcane

49% mainly from Corn 16%

28%

7% 

### Ethanol report November 2010

Grow th rate 2003

- 2008 = 16.5% per year

Growth rate 2008-2011 = 10% per year

United States Biggest c onsumer 49 % of w orldwide

demand Ethanol mixed with

gasoline

Brazil Ethanol mixed with gasoline but also used alone instead of gasoline

Grow th rate 2003

- 2008 = 16% per year

Growth rate 2008-2011 = 8.3% per year

United States replace Brazil as the largest producer. Mainly corn e thanol

Brazil Only sugarcane ethanol. Mills able to produce both sugar and ethanol

### 3 

# 2. USA: Bottleneck in the ethanol demand?

The US consumption is reaching its cap (blend wall)

* 1000 bbl/day

E10 Max

Consumption

E15 Max Consumption

0 200 400 600 800 1000 1200 1400 1600

oct-07 ja nv -08 avr- 0 8 ju i l-08

o ct - 08 janv- 09 av r- 09 juil-09 oc t -09 janv-10 avr- 1 0 juil-10 oct - 10

j a nv -11 av r- 1 1
j u il - 11 oc t -11 445 K Barrel per Day Consumption



### US ethanol production overcapacity

400 500 600 700 800 900 1 000

oc t .-07

j a nv .-0 8

a v r.-08

j u il. -0 8 oct.-08

j a nv .-0 9 av r.-09 ju il .-0 9 oct.-09

j a nv.-10 av r.-1 0 ju i l.-1 0 oct.-10 janv.-11 avr.-11 juil.-1 1

o c t.-11 

### *1000 bbl/day

US ethanol production capacity US ethanol demand 

### E10: 10% e thanol in gasoline blending = 12.6 bln gallon = 47.6 mln m3 per year

(max allowed)

Today, ethanol demand is reaching the blend wall

From E10 to E15: +50% of p otential

d emand = 6.8 bln gallon = 25.8 mln m3 per year

E15 allowance: not yet generalized and many legal and logistic issues

to solve

More than 9 5 % e thanol made from corn

In 2010, US e thanol production capacity = 13.6 bln g allon = 51.5 mln m3 per year 8% more than domestic ethanol

d emand

Overcapacity = Surplus = Low prod uction

margins Ethanol report November 2010

### 4 US ethanol prices highly correlated with US corn

CBOT Corn Future (Left) CBOT Ethanol Swap (Right)

250 350 450 550 650 750 850

j uil .-07

s e pt.-07 nov .-07 ja n v.-08

m ars -08
m ai-08 ju il .-08

s ep t.-08 nov .-0 8 ja nv .-09 mars-09
m ai-09 jui l .-09

s ept. - 09 nov.-09 janv.-10

m a rs-10
m ai -10 juil.-10

s e pt.-10 cts/bu

1,20 1,40 1,60 1,80 2,00 2,20 2,40 2,60 2,80 3,00 3,20 $/gal



### US corn supply and demand

250 275 300 325 350

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 mln bu

0% 5% 10% 15% 20% Stock-to-use (%) US corn supply US corn demand

Minimum stock level



### US biofuels mandates (the Renewable Fuel Standard)

0 30 60 90 120 150

2006 2008 2010 2012 2014 2016 2018 2020 2022 * mln m3/year

Other biofuels (corn ethanol) Other advanced biofuels Biodiesel Cellulosic 

### 90% c orrelation between US ethanol & US corn

prices

During H1 2010, e thanol prices at historically low levels but prices are currently rising because of the tight situation of

corn

In 10/11, estimated corn consumption higher than

corn crop

Strong decrease of US corn stocks is expected

S upporting high corn

prices Ethanol report November 2010

RFS: Ethanol d emand +15% per year

Corn ethanol d emand stabilizes after 2015 = 15 bln g allon = 57 mln m3 per year

Potential market for other a dvanced biofuels

Other advanced biofuels include s ugarcane ethanol from Brazil but not corn ethanol

California also has its own regulation (LCFS), promoting a dvanced

biofuels

### 5 Changes in RFS advanced biofuels mandates

2010 Advanced Biofuels Mandates - 0.95 BGY

2011 Advanced Biofuels Mandates 1.35 BGY



# 3. BRAZIL – Supply not enough for demand?

Share of Flexible Fuel Vehicles in sales of new car s

0% 20% 40% 60% 80% 100%

2002 2004 2006 2008 2010 2012 2014 Gasoline Cars Market Share FFV Cars Market Share Diesel Cars Market Share 

### P rodu ction of cellulosic ethanol not ready yet

Reduction of cellulosic ethanol mandate = increase of other advanced biofuels

mandate

Additional potential for imports of s ugarcane

ethanol

Financial c risis ha d a limited impact on Brazilian car sales

Flex Fuel Vehicles can replace gasoline by f uel ethanol (hydrous)

90% new cars s old = Flex Fuel Vehicles

FFV in t otal Brazilian

cars fleet = 10% in 2005 = 33% in 2009 = 70% in 2014 Ethanol report November 2010

### 6 Potential of the Brazilian ethanol demand

*1000 m3/month

0 2 000 4 000 6 000 8 000 10 000

2002 2 003 200 4 2005 2006 2 007 200 8 2009 2010 2011 201 2 2013 20 14 2015 201 6 2017 20 18 2019 202 0 Hydrous Anhydrous



### (assuming all FFV using only ethanol – not gasoline )

Flexible consumption responding to 2009/2010 prices levels

800 1 000 1 200 1 400 1 600 1 800 2 000 2 200 2 400

ao ût-09 se pt. -09

o ct.- 0 9

n ov.- 0 9

d éc.-09

j anv.- 1 0 févr .- 10 mars-10 avr.-10
m

a i-10

j u i n - 1 0

j u il .- 1 0 ao ût-10 *1000 m3/month hydrous ethanol, Esalq R$/m3

1500 1600 1700 1800 1900 2000 2100

Ethanol consumption (left axe) Gasoline consumer price (ethanol equiv., right axe) Ethanol consumer price (right axe) 

### Increas e of FFV c ars = huge increase of the maximum demand of fuel ethanol (hydrous)

Slow decrease of

the ethanol blended into gasoline (anh ydrous)

Sugarcane ethanol production takes place between April and Nov

From January 2010 To May 2010 Gasoline cheaper tha n fuel ethanol: collapse of the ethanol consumption

After May 2010 Ethanol p rice cheap again: rebound of the ethanol c onsumption Ethanol report November 2010

### 7 High prices levels with low stocks in 2009/2010

0 1000 2000 3000 4000 5000 6000 7000 8000

av r -09
m ai-0 9

j u i n -09 ju i l - 09 août- 09 se pt -09 oc t -0 9 no v- 09 dé c-0 9

j a nv -10 févr-10

m ar s- 10 

### *1000 m3

0 200 400 600 800 1000 1200 1400 hydrous ethanol, Esalq R$/m3

5-year average stocks (left axe) 2009/2010 stocks (left axe) 5-year average prices (right axe) 2009/2010 prices (right axe)



### Prices & Stocks Forecasts for 2010/2011 Historically h igh p rice s are explained by low stock levels ~ 2 mln m3 lower than average in Dec. 2009

Prices jumped sharply to cut consumption down by 25% during 6

months Ethanol report November 2010

2010/2011 forecasts assuming steady ethanol prices : s tocks would be very low in March 10/11

Need to reduce again the demand?

Repeat of 200 9 situation?

0

1000 2000 3000 4000 5000 6000 7000 8000 9000

avr-1 0 mai-1 0

j u in-10 juil-10

août-10

s e pt- 10 oct - 1 0

n ov-10 dé c - 1 0 janv-11 févr-11 mars-1 1 *1000 m3

0 200 400 600 800 1000 1200 1400 hydrous ethanol, Esalq R$/m3

2010/2011 stocks (left axe) 2010/2011 prices (right axe) Scenario: 1000 R$/m3 

# ?

### 8 

# 4. EUROPE-27 – No major changes

EU ethanol supply & demand Up to 2015

0 2 4 6 8 10 12 14

2007 2008 2009 2010 2011 2012 2013 2014 2015 *mln m3

Production Consumption Deficit



### Fuel ethanol production per country in the EU

* mln m3

0 1 2 3 4 5 6

2004 2005 2006 2007 2008 2009 2010 2011 Others (12%) Czech republic ( 4% ) Sweden ( 4% ) Poland ( 5% ) Belgium ( 7% ) Netherlands ( 8% ) Spain ( 8% ) UK ( 12% ) Germany ( 17% ) France ( 23% ) 

### Ethanol report November 2010

Increasing s upply & d emand thanks to biofuels p olicies in EU member states

Structural deficit in EU. Increasing a long with

d emand

Structural deficit of non-fuel ethanol: ~ 0.5 mln m3/year

Production in 2011 is 11 times larger than

in 2004

Diversified ethanol feedstock: beet, w heat

and corn

France, Germany and UK = more than 50% of

EU production

### 9 Localization of surplus/deficit of fuel ethanol

DEFICIT

SURPLUS BALANCED

No prod./demand



### Different import tariffs for fuel ethanol in the EU

Low duty 102€/m3 High duty 192€/m3 No imports, quotas for local

producers Low and high duties 

### Ethanol report November 2010

Surplus = France, Belgium & Eastern Europe

Deficit = Northern Europe & Med. Area

Surplus/Deficit not linked with f

eedstock availability

Northern Europe: Feedstock a vailable but

still in d eficit.

Spain: Opposite

Fuel e thanol import tariffs : different among member states

Fuel ethanol imports : mainly in countries with low import tariffs

Most countries with high import tariffs are ethanol e xporters (within EU)

Fuel e thanol policies are not standardized

in the EU

### 10 

# 5. WORLDWIDE ETHANOL TRADE FLOWS – Major changes happened

Comparison of US prices & Brazilian prices

300 400 500 600 700 800

j uil
. - 0 7 se p t .-07 no v. - 0 7 janv. - 08 mars-08 mai-08

j ui l.-0 8 sept.- 08 nov.-08 janv.- 0 9

m ar s -09 mai-09 juil.-09 se p t
. - 09 nov. - 09

j an v.- 10

m ar s -10
m ai - 10 juil.-10 se p t .-10 $/m3

Brazilian Ethanol
US Ethanol US Ethanol is more competitive than Brazilian Ethanol



### Trades flows in 2009 & 2010

Brazil 3400 EU 1400 Central America* 1000 USA 900 USA 450 Central America* 800 Pakistan 200 Japan/Korea 700 South-Africa 200 India 500 China 100 Canada 300 Ukraine 100 West Afr. / Nig. 200 Others 250 Others 900 TOTAL 5700 TOTAL 5700 *Central America includes re-export to US

Brazil 1580 Japan/Korea* 1090 USA 1080 EU 800 Central America 200 India 350 Pakistan 200 Philippine 215 South-Africa 200 West Afr. / Nig.* 200 China 150 Canada 200 Ukraine 100 Others 905 Others 250 TOTAL 3760 TOTAL 3760 *Including ETBE imports

Major Exporters Major Importers 2009 Trade Flow Data (*1000 m3) Major Importers Major Exporters

2010 Trade Flow Data (*1000 m3) 

### Ethanol report November 2010

Pre

- Sep. 2009 Brazilian s ugarcane ethanol is the c heapest

in the w orld

Post-Sep. 2009 US corn e thanol is cheaper than Brazilian sugarcane ethanol

And much cheaper!

2009 Brazil: largest exporter ~60% World Market

US: i mport 0.9 mln m3

from Brazil

2010 World m arket shared between Brazil & US

Brazil: exports down, (by more than 50%) 40% of world market

US: end of imports & exports up ~30% of world market

### 11 World trades flows map 2009 & 2010

MAJOR TRADE FLOWS IN 2009 ~ 5,7 Millions m3 / Year

Fuel Industrial & Beverage Fuel & Industrial

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### . Ethanol report November 2010

2009

US: Imports 0.9 mln m3

from Brazil

EU and Asia: Structural deficit of e thanol >> Need to import

2010

US: From net i mporter to net exporter

Brazil: less dominating the

world market

EU and Asia: Still importing, a rbitrage between US & Brazilian

prices

Globa l trades flows down from 5.7 to 3.7 mln

m3/year



### MAJOR TRADE FLOWS IN 2010 ~ 3.7 Millions m3 / Year Industrial & Beverage Fuel & Industrial

### 12 

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