A recent McKinsey research study suggested that world Ethanol exportation could reach 50 to 100 billion liters by the year 2020. This represents a possible 1,600% growth over 12 years. Peruvian sugarcane Ethanol Company Stratos Renewables is poised to profit from this exponential demand growth and to become the low cost leader in Ethanol exports.
Brazil is attempting to cash in on the Ethanol exports as well, however Peru is far better positioned as far as trade terms go. Peru is part of a free trade agreement with the US allowing for untaxed imports between the countries, whereas Brazil’s exports are taxed almost .20 cents a liter reducing their producers’ margins. This makes Peru and Stratos extremely attractive and allows the company to export at the lowest costs.
Production costs are around .20 cents a gallon to produce Ethanol from sugarcane in Peru. This is compared to almost .40 cents in the US for Corn and .52 cents for wheat in Europe. Sugarcane also produces 6,000 liters of Ethanol while corn produces only half of this. Peruvian Sugarcane is clearly the better choice.
This expected extreme demand growth will require extensive logistics and an efficient production process. Stratos’ strategy is to be fully vertically integrated within the industry at every value chain up to the Port Logistics. By fully controlling the entire sugarcane to ethanol process, the company has the ability to keep cost as low as possible at every stage, from production to final exportation. This enables them to have above average profit margins.
As CEO, Tony Salas is quoted saying, “Stratos has chosen the right crop, the right country, at the right time”, and they truly have. They have clearly set the stage to become the world low cost leader in Ethanol production and have all the right ingredients for success.
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