It is reported by Reuters.

The sugar and ethanol industry, as well as international sugar traders, were widely expecting the resumption of federal taxes on gasoline and ethanol as the new administration takes over, as indicated by Finance Minister Fernando Haddad last week.

But one of the government's first acts was to publish a decree on Monday keeping the fuels exempt.

«When we began writing this report it looked almost certain that the federal taxes on gasoline would return on January 1; but now it looks as if they will not. Politics has beaten economics», — said broker Marex in a note.

«In our perspective, this measure might have negative effects on the S&E sector, as it maintains the ethanol prices below the market's forecast, while the expectation was for an increase in ethanol prices in the beginning of 2023», — said Citi Research.

Since federal taxes, called Pis-Cofins, are usually heavier for gasoline, their return was widely seen as positive for ethanol which could gain market share, and as a consequence also positive for sugar prices, since mills would have an incentive to produce more of the biofuel and less sugar.

«Lula's inauguration brings a weak real and a freezing of fuel taxes for 60 days. This will keep the mills concentrating on sugar», — a New York-based broker said.

Mauricio Muruci, an analyst with Safras & Mercado, said fuel distributors were actively buying ethanol late last year before the expected tax return, which now could pressure the biofuel's prices in the local market going forward.