Ethanol Pricing

Ethanol fuel, also known as ethyl alcohol, is used as fuel for motor vehicles all around the world. United States and Brazil are known to be the major producers of ethanol. In United States, it is used for oxygenating the gasoline that is, too used as fuel, on the other hand in Brazil, all ethanol is used as fuel. Talking facts, in 2008, United States topped among all ethanol producing countries by producing 9000 billion U.S liquid gallons of ethanol, while on the other hand, Brazil produced 65.6 million litres which is, almost 89 per cent of the total world production of 17.33 U.S gallons of ethanol.

Until mid may of 2009 the price of ethanol, in Asia grew lower from 590$-625/tonne in March to 560$- 575$/tonne. And not be mentioned Brazil, being world’s largest producer of ethanol, continued to have plentiful of supply. But due to ongoing global recession, few Brazilian sellers sold their crop at rather lower prices. Although the hope of a bumper crop in the beginning of may kept prices at an all time high.

Ethanol market in United States also showed a different pattern. A drop was observed in the prices in May. Also, a sharp decrement in the demand of ethanol, in the first quarter of the year was noticed. But the demand has rebounded after the outbreak of swine flu in April as a lot ethanol is been used in various cleaning products and sanitizers. These were the present updates on ethanol pricing. But on a broad scale, we may know what actually determines the pricing of ethanol.

Ethanol, is majorly used as an alternative fuel all around the world, is derived through various chemical process and sources of renewable energy. One of the major sources of ethanol production is corn crop, so more or less the costs of ethanol, depends on the price of corn. And, as it is known, oil prices affect the price of food, and so any rise in oil prices will automatically result in price rising of food and therefore increasing the ethanol rates.

Predicting ethanol pricing is never an easy job, as in involves lots of tiny other details. For instance, the mixing of gasoline in ethanol affects the prices too. Majority of vehicles uses a blend of ethanol and gasoline. Now, these blends also come in different proportions. E.g. E10 is a blend of 90 per cent of unleaded gasoline and 10 percent ethanol, works in most vehicles of America. Another combination of ethanol and gasoline is E85, it is a blend of 85 per cent of ethanol and rest 15 per cent is unleaded gasoline, but this works only for flexible fuel vehicles (FFV’s) that are largely used by the population of Brazil.

Apart from prices of gasoline, prices of corn crop another factor that affects the ethanol blends pricing is the region. For example, in the upper Midwest region the prices are generally lower as compared to prices in the mountainous or hilly regions. Reason being , the ethanol is not required to be transferred from a long distance in plains, while on mountains it is transported from far away regions that adds to the cost.

In United States, the ethanol production is promoted by the government as well, as it adds to U.S’s energy security. it kind of lightens the burden that comes while buying the foreign produced oil, obviously it is better to rather depend on self produced fuel to meet the needs.

As per, analysis in 2008, by Lowa state university the growing production of ethanol in U.S has helped reduce the costs of gasoline. Thus, even though the ethanol pricing is determined by several factors, but itself is a determiner of costs of many other resources.

The article was written on 07/2009