Sugar market eyes proposed fuel tax in Brazil that could weaken sugar prices


Band Roberto Samora and Marcelo Teixeira

SAO PAULO/NEW YORK, June 7 (Reuters)The sugar market is following the progress of a Brazilian bill that could reduce taxes on fuels, especially gasoline, which would likely lead factories to switch to producing sugar from ethanol and, ultimately to lower world sugar prices.

A new version of the bill is expected to be introduced on Wednesday. No date has yet been set for the vote.

The Brazilian government is pushing for legislation that would cap the ICMS state fuel tax at 17%. Since the ICMS tax is higher on gasoline than on ethanol, and above 17%, the law would reduce gasoline prices. To remain competitive, ethanol should also fall in price.

Investment bank Itau BBA said on Tuesday that if the legislation is approved, it would lead to a new level of lower support for raw sugar prices on ICE.SBc1

If ethanol prices fall, plants that have the ability to make more ethanol or more sugar based on market prices could switch to sugar, increasing global supply.

Sugar and ethanol analyst Julio Maria Borges said the new law could reduce ethanol’s competitiveness against gasoline by 8 percentage points in the key fuel market of Sao Paulo, which would make it difficult to compete with biofuel.

“So now we are at the mercy of Brazil’s political system, which is confusing at best,” said a US-based sugar broker.

European trader Marex Spectrum, however, said in a note that pressure from state governments, which would lose revenue with the new law, could cause the vote to be delayed and possibly postponed indefinitely as Brazilian lawmakers have a break. in July, then enter campaign mode ahead of the presidential election in October.

(Reporting by Roberto Samora and Marcelo Teixeira, editing by Alexandra Hudson)

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