U.S. Ethanol Exports to Brazil to Suffer from Large Tariff Hike

In May, Brazil’s Senate passed Bill 688 raising the country’s PIS-COFINS tax, which applies to a wide range of imports, including ethanol to 11.75%. U.S. ethanol currently accounts for the majority of foreign ethanol Brazilian imports, and U.S. traders are concerned about what the increase will mean for the industry.

Currently foreign ethanol imports are subject to a PIS-COFINS of 9.25%, but the importer receives a credit that offsets the amount of the tax. Once the increase to 11.75% goes into effect, all credits will be discontinued, so it will be as if there is a full tax increase of 11.75%.

From January through May of this year, Brazil imported 357 million liters of ethanol from the U.S. – up 26% over the 282 million liters imported in the same time period of 2014.

Adding to the concern among U.S. traders is the fact that U.S. ethanol inventories are currently nearing their highest since 2012. High inventories combined with the cooling effect the tariff increase will have on trade, could result in downward pressure on futures prices.