Commodities 2025: Brazil's Ethanol Industry at a Crossroads in 2025

By Vinicius Damazio (S&P Global) Internal competition, growing mandate, EU-Mercosur trade deal in focus; Higher debt, caution from key players suggests conservative growth; Uncertainty around US trade policies, EU deal boosts export prospects --

Brazil's ethanol market is heading into 2025 at a pivotal juncture as fierce domestic competition, a growing blending mandate and the newly announced EU-Mercosur trade deal all have the potential to change trade flows, both regional and global.

Higher debt levels and a more cautious approach from key industry players suggest that the sector, once accustomed to ambitious growth, could also be on a more conservative path moving forward.

Retail ethanol sales have been on a tear in 2024, and the introduction of new fixed rates for the state-level ICMS tax on gasoline, effective Feb. 1, should sustain hydrous E100's status as the fuel of choice for many motorists in the early months of the new year. But 2025 will also see higher mandate expectations, which could sweeten the appeal of anhydrous (pure) ethanol for producers.

In October, President Luiz Inácio Lula da Silva signed the long-awaited Fuel of the Future program into law, which increases the anhydrous blend in gasoline from a range of 18%-27.5% to 22%-35%. The fossil fuel currently contains a 27.5% blend, which the government aims to push to 30% in 2025.

"In a few months, we will be able to effectively put E30 on the market," said Henry Joseph Junior, sustainability director at Brazil's vehicle association Anfavea, during a workshop in October. "We have the means to do it, to put this out effectively, which is why we see E30 as an intermediate step."

The expected growth in corn ethanol production could lead to a greater presence of Center-South producers in the North-Northeast. Markets in these regions, which have been dominated by local sugarcane mills and cabotage operations by major trading companies, are attracting more interest not only from the corn biofuel investors, but also from traders, brokers and logistics firms.

Analysts are also tempering their expectations for the future of cellulosic, or second-generation (2G), ethanol. Changes in leadership at Raízen, a top sugar-alcohol processor, are expected to lead to a reevaluation of the company's business plan, which once aimed for 20 cellulosic plants by 2030—a target that now seems unlikely.

Meanwhile, in a surprising shift, state-controlled Petrobras, which refocused on oil and gas in 2015, is now planning to invest $2.2 billion in the ethanol sector, raising questions about potential partnerships as the oil giant looks to re-enter the biofuels market. READ MORE