Lula’s fuel tax changes will affect the sugar and ethanol industries

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Roberto Zamora and Marcelo Teixeira

SAN PAULO/NEW YORK, January 3 (Reuters).Brazil’s sugar and ethanol companies are at risk after new president Luiz Inacio Lula da Silva stunned markets with a fuel-free decree federal taxesanalysts said on Tuesday.

The sugar and ethanol (S&E) industry, as well as international sugar traders, widely expected the reinstatement of federal taxes on gasoline and ethanol as indicated by Finance Minister Fernando Haddad last week.

But one of the government’s first actions was to issue a fuel exemption order on Monday.

In response, raw New York Sugar Futures fell about 2% on Tuesday.

“Politics trumped economics,” brokerage Marex said in a note. “In our view, this measure could have a negative impact on the M&E sector, as it will keep ethanol prices below market expectations, while ethanol prices are expected to rise. ethanol in early 2023,” Citi Research said.

Because the federal taxes, known as Pis-Cofins, are generally heavier on gasoline, their yield has been seen as positive for ethanol, which could gain market share, and therefore positive for prices. sugar, as factories are encouraged to produce more. biofuel and less sugar.

Sugar and ethanol industry group Unica said the new administration was “complicit” in an environmental assault that began under the old administration, saying the measure contradicted Lula’s speech. COP 27 UN climate meeting in November.

The group says the tax exemption is unconstitutional because the law requires the federal government to provide tax breaks for biofuels.

Lula’s team did not respond to Reuters’ request for comment.

Safras & Mercado analyst Mauricio Murucci said fuel distributors had been actively buying ethanol ahead of an expected profit announcement late last year. This purchase may now put pressure on biofuel prices in the local market.

(Reporting by Roberto Zamora in Sao Paulo and Marcelo Teixeira in New York; Editing by Barbara Lewis)

((marcelo.teixeira@tr.com; +1 332 220 8062; Reuters message: marcelo.teixeira.thomsonreuters.com@reuters.net – https://twitter.com/tx_marcelo))

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