Q4 outlook: Market pressures on ethanol and spirits

The global ethanol and bulk spirits markets continue to be shaped by shifting trade dynamics, new blending mandates, and rising tariff pressures. Brazil’s recent policy changes, the US headwinds, thanks to export gains and tariff-driven cost challenges, and Europe’s tightening sustainability standards are reshaping competitive positions across the sector. Meanwhile, the spirits industry faces higher costs and changing distribution models, with new regional opportunities emerging.

Below is an overview of the most significant developments across key markets and their implications for trade flows in Q4 2025 and beyond.

North America: The United States

• Exports steady with growth in India: US ethanol exports started 2025 strongly at 750 million litres (198.1 million gallons) in January, up 2% YoY. India nearly tripled imports, while Canada remained the top buyer despite lower volumes. EU demand softened.
• Market support: US ethanol prices rose slightly, supported by export gains and trade deals with Indonesia and Japan.
• Policy signals: Studies suggest US ethanol (especially E15 and E85 blends) could expand under incentives like RIN credits and IRA tax breaks.
• Tariff pressure on spirits: Diageo anticipates a USD 200 million annual impact from new 10% US tariffs on UK/EU imports, prompting cost-cutting and supply chain adjustments.
• Approval of E15 blend in California: The California’s Governor signed AB30 to allow 15% ethanol blends (E15) in gasoline, increasing domestic ethanol demand.
• Spirits pricing on the rise: Tariff pressures in the US are already pushing wholesale wine and spirit prices higher. Analysts estimate a 15% tariff on European imports could add more than $0.19 per litre ($0.80 per gallon) on average. Brands are under growing pressure to protect margins as rising import costs and trade tensions reshape pricing across the industry.

South America: Brazil and Argentina

• Higher blending mandate in Brazil: From August 2025, Brazil raised its ethanol blending requirement from 27% to 30%, aiming for gasoline self-sufficiency. Biodiesel blending rose from 14% to 15%.
• Brazil’s exports to EU: Flows to Europe, especially via ARA, are expected to grow despite 2024 exports falling to 1.9 billion litres (down from 2.5 billion in 2023).
• Brazil’s feedstock dynamics: Corn-based ethanol production continues to expand in the Centre-South, partially offsetting weaker sugarcane supply.
• Argentina’s role: Following the EU–Mercosur deal, Argentina is also positioned to increase ethanol exports under reduced tariffs, adding competitive pressure within the bloc.

Europe

• Supply constraints: Poorer grain harvests and RED III sustainability rules are raising production costs for EU ethanol producers.
• EU-Mercosur deal: The late-2024 agreement opens quotas for Brazilian ethanol under reduced tariffs, strengthening South American competition.
• Spirits labelling rules: The EU’s Regulation 2025/40 came into force, introducing stricter rules for physical labelling of spirits across the EU.
• Insights from IBWSS San Francisco: Spirits producers are expanding into co-packing, bulk supply, and private label models as growth strategies.

Asia: China, India, and Pakistan

• China’s spirits sector recalibrates: China’s spirits market is slowing but not contracting, with growth tempered by softer consumer sentiment and intense competition. Premiumisation remains a key driver, though volumes show mixed performance.
• South Africa–China cooperation intensifies: In response to rising US tariffs, South Africa and China pledged expanded investment cooperation, particularly in energy, infrastructure, and manufacturing sectors.
• India permits 2G ethanol exports: New rules allow second-generation ethanol with certification, diversifying trade opportunities.
• India diverts surplus rice into ethanol: The Indian government is diverting 5.2m tons of surplus rice into ethanol production to ease stockpiles and support blending.
• India’s fuel exports rise: Higher refining capacity and increased domestic blending are freeing more gasoline and diesel for export.
• Pakistan faces market uncertainty: The ethanol sector is under strain in 2025, with regulatory shifts (notably the EU’s suspension of tariff preferences) contributing to pressure on export flows. Fluctuations in output and trade have been observed and forecasts now carry higher risk.

Middle East

• Mixed price trends: Ethanol prices remain uneven in 2025. After peaking in 2022, import prices for undenatured ethyl alcohol in the Middle East declined between 2023 and 2024. While renewed upward pressure from supply constraints or feedstock costs is possible, there is no clear evidence yet of a sustained rebound.
• Regional production growth: Ethanol output in the Middle East rose by nearly 25% in 2024 to around 169 million litres, with Turkey accounting for more than 80% of total production. This expansion could reduce import dependence over time.
• SAF and biofuel momentum rising in UAE: The Gulf is positioning itself as a hub for sustainable aviation fuel. A planned facility in Fujairah is projected to supply up to 150 million litres annually, and Dubai’s Lootah Biofuels has confirmed it will launch SAF at the Dubai Airshow in Q4 2025.
• Spirits market growth: The Gulf continues to attract spirits brands, especially premium and non-alcoholic variants.

Africa

• South Africa pushes back on tariffs: President Ramaphosa has urged US trade officials to ease new tariffs, warning that trade is increasingly being used as a geopolitical “weapon” and urging reciprocity in trade policies.
• AGOA extension: US officials plan to extend the African Growth and Opportunity Act (AGOA) by one year, temporarily safeguarding duty-free access for exporters.

Global trends

• Logistics disruptions: Ongoing Red Sea tensions and recent years’ drought risks at the Panama Canal highlight vulnerabilities in global shipping, with freight costs for goods remaining elevated and trade routes under pressure.
• Currency instability: Dollar volatility in 2025 has introduced additional challenges for importers and exporters, with exchange-rate swings squeezing margins and creating cost pressure in many trade flows.

Our take: Q4 2025 and into 2026

Ethanol and spirits markets are deeply connected, yet trade itself is becoming increasingly fragmented. Brazil’s higher blending mandate is pulling ethanol back into the domestic market, just as South America gains wider access to Europe. In the US, strong export numbers contrast with tariffs that are reshaping spirits pricing. Europe’s sustainability rules are forcing producers to rethink their cost base, while Asia is splitting between India’s export push and China’s cooling demand.

Freight disruptions and dollar volatility are testing margins across the board. The result is more regional deals, more policy-driven flows, and sharper price swings. New demand channels, including SAF in the Gulf and higher blending across Asia and South America, are likely to shape trade into 2026. The question is not whether volatility will persist, but where the next disruption will come from.