LONDON/SAO PAULO - A tightening domestic market in Brazil for white sugar and ethanol biofuel has led producers in the country to buy back raw sugar that was sold to trade houses for export, trade sources said.
Buoyant demand for low-quality white, 150-ICUMSA sugar and for anhydrous ethanol in Brazil, the sources said, had boosted incentives for the producer buy-backs, or 'washouts' as they are called in the trade.
"I have heard of those deals, made by some sugar companies in the centre-south region in the last weeks," said João Paulo Botelho, a sugar and ethanol analyst with INTL FCStone in Campinas in Sao Paulo state.
Cepea/Esalq, a market research body for agricultural products, said in a weekly report on Monday that domestic sugar prices last week were 15 percent higher than export deals.
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A weekly indicator for crystal sugar averaged 77.86 reais per 50 kg bag, compared with an equivalent of 67.25 reais per bag based on the ICE New York March contract.
"There have been reports of very high polarization (high quality) raws washouts as the physical discount (to futures) continues to tighten and the rains in centre-south Brazil create concerns about production," a sugar trade source said.
The heavy rainfall in cane areas of centre-south Brazil has slowed the crush and tightened domestic availability, eroding sugar content in cane and increasing incentives for ethanol production.
Ethanol biofuel is used in "flex fuel" vehicles in Brazil, powered by a mixture of ethanol and gasoline.
"The producer buy-backs are simply confirmation that ethanol and sugar supplies are tight in the run-up to the 'off-crop' period in centre-south Brazil," said Michael Liddiard, a consultant with Agrilion.
"The export market is still strong, but there is a limit to what can be produced."
Prompt physical centre-south Brazilian raw sugar last traded at a discount of around 63 points to ICE front-month futures , compared with a 70 points discount in mid-October.
Front-month ICE raw sugar futures traded at 14.85 cents a pound on Monday.
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One analyst said crystal sugar, usually 150-ICUMA white sugar - large grain, with slightly higher colour than refined, 45-ICUMSA sugar - was the most lucrative in the domestic market, equivalent to more than 17 cents a pound.
For producers who cannot make crystal sugar, anhydrous ethanol from cane was paying a small premium over high quality raw sugar for export.
The analyst quoted anhydrous ethanol at the equivalent of 14.8 cents a pound.
