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Expiration of US Tariff on Imported Ethanol Should Benefit Cosan and Petrobras

|Includes:Cosan Limited (CZZ), PBR

The US tariff on imported ethanol expired December 30th, making Sugar-based ethanols produced by Cosan (NYSE:CZZ) and Petrobras (NYSE:PBR) more price competitive.  If you couple this with the fact that sugar-based ethanols are less disruptive on food prices than corn-based ethanol, demand from social activists will likely increase.

According to a recent article in the Rio Times (riotimesonline.com/brazil-news/rio-busin.../), demand for imports of Brazilian based ethanol will increase 10-fold once sugar plantings, including plantings by CZZ, increase to meet the new demand.

Recently CZZ has been trading at the lower end of its 52-week range, due primarily margin slippage resulting from supply and demand factors relative to sugar.  One would expect that with the increased demand for sugar-based ethanol, margins will recover and revenues will soar.


Disclosure: I am long CZZ.

Additional disclosure: I have increased my long position in CZZ since the first of the year.

Stocks: CZZ, PBR