Rising tensions in the Middle East are starting to impact Brazil’s sugar and ethanol industry, as higher global fuel prices push up production costs and influence mill strategies in the Centre-South region, according to a report by CPG.
An assessment by StoneX shows that the sharp increase in crude oil prices has created mixed effects for the sector. Since February 28, Brent crude has surged by over 40 per cent, while import-based prices have risen by 48 per cent for petrol and as much as 91 per cent for diesel.
The impact is already visible within Brazil, where diesel prices have increased by more than R$1 per litre on average by March 21. In São Paulo, prices have risen by around 12 per cent.
Analysts say higher oil prices are supporting ethanol revenues, improving earnings for mills. However, the steep rise in diesel costs is significantly increasing operational expenses, especially in agricultural activities.
Diesel remains a key component of the sector’s cost structure, closely linked to overall agro-industrial expenses. Estimates suggest that every R$1 increase per litre can add up to R$36.5 per tonne to sugarcane production costs.
Measures such as tax relief on diesel have provided limited relief, as ongoing price adjustments continue to keep costs elevated.
The Middle East situation is also affecting global fertiliser markets, with prices of inputs like urea and MAP rising due to supply constraints and higher energy and transport costs. However, the immediate impact on Brazil is expected to be limited, as most fertiliser purchases are typically made in the latter half of the year.
For the upcoming season, production costs of VHP sugar in the Centre-South are estimated at around R$1,730 per tonne at the mill level. With global sugar prices hovering near break-even levels, mills are operating under tight margins.
Some relief may come from improved productivity, lower field investments and reduced costs for sugarcane inputs and third-party cane.
With ethanol becoming more competitive due to higher oil prices, mills are likely to divert more sugarcane towards ethanol production. At the same time, rising diesel costs are putting pressure on sugar margins, prompting strategic adjustments for the 2026–27 season.
