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Fitch: High Oil Prices, Cost Advantages Drive Growth in Brazilian Biofuel Sector
NEW YORK - March 6 2008 - Today, Fitch issued a special report, titled 'Brazilian Alternative Fuels: High Oil Prices Plus Cost Advantages Equals Growth.' The report provides snapshots of the biofuel sector in Brazil, highlighting major industry drivers, challenges, current and future players, as well as domestic and global prospects. Fitch believes that Brazil's significant competitive advantages and the growing global demand for alternative fuels should allow its biofuel industry to increase global production and exports.
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Key production factors such as a diverse climate, geography and geological conditions, an abundance of disposable land coupled with lower land prices, low labor costs, and government incentives demonstrate Brazil's many cost competitive advantages that should allow it to grow its low-cost production. Furthermore, the increased use of flex-fuel vehicles, as well as growing requirements on a global level for fuel with an ethanol/gasoline blend, show potential for continued evolution in the industry.
Throughout 2008, Fitch expects Brazilian sugar and ethanol producers will continue to improve, while biodiesel producers will be more challenged. 'Ethanol and sugar producers' performance should improve gradually during the 2008/2009 harvest due to a slight recovery in sugar prices, a continued increase in ethanol sales, and increased participation in the energy sector,' said Revisson Bonfim, Director in Fitch's Latin America Corporates Group. 'Additionally, ethanol producers in Brazil may eventually benefit from the insufficient natural gas supply in the short and intermediate term.'
Growth potential for biodiesel is expected to remain strong, driven by favorable macroeconomic policies such as long-term mandatory and authorized blends of diesel in the domestic market, along with increasing demand prospects overseas. However, producers are likely to experience a difficult year unless they adjust future auction prices to reflect higher soybean prices and resolve logistical problems. 'The market potential for the biodiesel industry in Brazil is strong, but infrastructure limitations and raw material supply are short-term problems that producers must address in order to take advantage of that potential,' said Bonfim.
The full report 'Brazil Biofuel 2008 Outlook' can be accessed on the Fitch Ratings web site at www.fitchratings.com
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Fitch Ratings
Revisson Bonfim, 212-908-0898 (New York)
Debora Jalles, 21-4503-2600 (Rio de Janeiro)
Pagsi Jimenez, 11-4504-2600 (Sao Paulo)
Christopher Kimble, 212-908-0226
(Media Relations, New York)
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