NWE ethanol price unlikely to repeat change of year rise: trade

Ethanol prices in the Northwest European market are unlikely to rise at the end of 2010 and the beginning of 2011 as they did the previous year due to changes in market dynamics, with most European ethanol imports now coming from the US, trading sources said this week.

"I don't think we will see prices rise," a trader said, adding that European ethanol had to compete with US imports.

According to trading sources, prices used to rise at the end of a year and the beginning of the following as this period corresponded to the inter harvest period in Brazil.

Brazilian ethanol, which used to be the predominant import product into Europe, is made of sugarcane. The Brazilian sugarcane harvest usually runs from April to November.

In 2009, T1 (EU duty paid) ethanol prices in Northwest Europe reached $704/cu m in December on a FOB Rotterdam basis, up from the annual low of $346/cu m, while at the beginning of February 2010 the price rose to an all time-high of $716.50/cu m, Platts data show.

Traders also added that the influx of E90, a mixture of 90% ethanol and 10% gasoline, which incurs a lower duty than regular denatured and non-denatured ethanol would keep prices from rising.

"If you looked at the US arbitrage, one could argue that T1 ethanol prices could rise, but guess the main issue is the competition with E90," a trader said.

At the current price of $2.16/gal on a New York Harbor basis, US ethanol could land in Europe at $637/cu m, while the European market was Monday assessed at $626.75/cu m.

However, with E90 paying a duty of 6.5% of price and T1 ethanol having to pay a duty rate of Eur102/cu m or Eur192/cu m, depending on which EU country the product is imported into, E90 seems is more attractive.

Considering the current E90 price, T1 product plus the Eur102/cu m duty rate would be more than $100/cu m more expensive than E90.

Some sources said that it was very difficult to have a view on the first quarter because very few people were taking positions due to uncertainty about EU sustainability rules for 2011.

Germany is the only EU country ready to fully implement the sustainability criteria for biofuels set out in the EU's Renewable Energy Directive, while other countries will only be able to implement it later in the year.

This delay is leading to a two-tier market in the EU, in which companies will bid or offer German-compliant material at a premium to regular ethanol.

source: platts