Brazil corn ethanol push gains momentum as COFCO, AMaggi, Raizen weigh entry

Praj Industries

18/12/2019 12:00

By Marcelo Teixeira
    CUIABA, Brazil, Dec 18 (Reuters) - Chinese commodities
trader COFCO, Brazilian grains group AMaggi and a Shell-Cosan
joint venture are working on plans to build their first corn
ethanol plants in Brazil, according to their suppliers, breaking
sugarcane's lock on the biofuel locally.  
    The wave of fresh interest from some of the world's biggest
energy and grains players suggests corn ethanol is ready for the
big time in Brazil, where sugarcane has been virtually the only
source of ethanol in the world's No. 2 producer of the biofuel.
    The impact on commodity markets could be far-reaching, as
new plants challenge U.S. ethanol for sales in northeast Brazil
and dent corn exports, which grew fourfold in the past decade.
    Few expected such an avalanche of investment two years ago,
at the launch of a pilot project producing corn ethanol in
Brazil's top grains state of Mato Grosso, but its profitability
has sparked a wave of copycats.
    The fresh interest from COFCO, AMaggi and the world's No. 1
sugar producer Raizen - co-owned by Royal Dutch Shell Plc
 RDSa.L  and Cosan SA  CSAN3.SA  — could quickly ramp up
Brazil's nascent corn ethanol industry.
    The country already has eight plants converting the grain
into biofuel, plus six under construction and at least seven
more in design phase. By comparison, Brazil has 349 plants
producing ethanol from sugarcane, according to the country's
agriculture ministry.  urn:newsml:reuters.com:*:nL5N26Z5UT
    UNEM, an association representing corn ethanol makers in
Brazil, estimates annual investments of around 2 billion reais 
($476.60 million) in plants in the next eight years.
    It sees total ethanol output at 8 billion liters and total
DDGs (dried distillers grains) production at 6 million tonnes
per year by 2028, products that currently would sell for a
combined 20 billion reais ($4.77 billion). DDGs are a byproduct
of corn processing that is increasingly used in animal feed.
    Although some traditional cane-based operations have met the
trend with skepticism, several embraced so-called flex projects,
using both corn and cane as raw materials depending on the time
of year, a model that offers financial and environmental
benefits.
    But corn ethanol remains competitive against sugarcane only
when produced in areas with ample and low-priced corn supplies,
such as Mato Grosso. 
    The new ethanol plants aim to make more profitable use of
Brazil's growing corn output, which has surged as farmers
learned to squeeze both a soy and a corn crop out of the same
fields in a single year, with help from the tropical climate.
    (See graphic on corn production in Brazil's top
grains-producing state: https://tmsnrt.rs/35G1gPe)
    Although it has been hard to export that corn profitably
from some corners of Brazil, ethanol production may open up
markets with higher margins, said people involved in studies.
    Ethanol prices hit a record high in Brazil last week above 2
reais per liter ($1.86 per gallon, price at mill gate, before
tax), and a new federal program stimulating biofuels consumption
- called RenovaBio - goes into effect later this month.
    
    NEWS COMING 'SOON'
    An engineer working for COFCO on a large, 1.2 billion
liter/year corn ethanol plant in Zhaodong, China, said the
commodities trader, which operates four cane-based sugar and
ethanol facilities in Brazil, is looking at corn ethanol in Mato
Grosso.
    "We talked about the possibility of making a similar project
in Brazil. They are evaluating," said the engineer, who asked
for anonymity because discussions are private.
    Another source, a COFCO supplier in Brazil, said the
trader's management was looking to build a corn ethanol plant
near its Rondonópolis soy crusher in Mato Grosso.
    That COFCO site has a railway that could take fuel to
Brazil's biggest consumer market in the country's southeast.  
    "Unfortunately we are not able to comment on any initiatives
yet," said a COFCO spokesman when asked about the plans.
    Raizen has also held talks with equipment suppliers to
evaluate an investment, according to one of them.
    "We've met with them four times, just outside Sao Paulo, but
they haven't decided yet," said Peter McGenity, sales director
for Kansas-based plant builder Lucas E3.
    Raizen initially denied plans for corn ethanol production in
Brazil. When asked about the meetings with suppliers, however, a
Raizen representative said the company was "aligned with market
trends to make investments in renewable energy that answer
long-term environmental needs." 
    A fourth source, who works for a European company that
offers engineering services for grain processing plants, said
AMaggi is also working on a corn ethanol project.  
    AMaggi, the largest Brazilian grain trader, which owns three
soy crushing plants and has partnered with Bunge Ltd  BG.N  to
transport soy and corn down the Amazon River and its
tributaries, said it could not comment on a potential corn
ethanol project.
    A spokesman said AMaggi would "soon" make an announcement on
its biofuel plans. 
    Ricardo Tomczyk, the former head of UNEM, took an executive
role at AMaggi a month ago.
 ($1 = 4.1964 reais)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on Brazil's Mato Grosso corn production projection    https://tmsnrt.rs/35G1gPe
FACTBOX: Brazilian corn-based ethanol industry expands   
 urn:newsml:reuters.com:*:nL5N26Z5UT
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Marcelo Teixeira in Cuiaba, Brazil
Editing by Brad Haynes and Matthew Lewis)
 ((marcelo.teixeira@tr.com; +55 11 5644 7707; Reuters Messaging:
marcelo.teixeira.thomsonreuters.com@reuters.net - https://twitter.com/tx_marcelo))