02 May 2006 21:26 [Source: ICIS news]
By Stephen Burns
HOUSTON (ICIS news)--After weeks on centre stage in volatile US fuel markets, ethanol has won a role on the small screen: the Chicago Board of Trade (CBOT) said on Tuesday it will commence electronic trading in ethanol futures on 31 May, amid rising volumes.
The ethanol contract will be traded on a "side-by-side" basis that will allow both pit and screen transactions, CBOT spokesman Craig Grabiner said. The dual-track trading session will start at 0930 CT (1530 GMT) and conclude at 1315 CT.
The CBOT is optimistic about the growth potential for the contract, which it said is the only actively traded ethanol derivatives contract in the world. Total open interest rose to more than 900 positions in April from around 850 in March, and is up from around 200 in April 2005. Market awareness of the contract took off in the second half of last year in the months following the hurricanes that constrained gasoline production on the US Gulf Coast.
The recent driver in prices and volume in the ethanol contract has been the phase-out of gasoline additive methyl tertiary butyl ether (MTBE). Logistical issues involved in establishing ethanol distribution chains have been blamed for localised shortages in some ?xml:namespace>
Grabiner said the key players in the ethanol market have been a mix of ethanol producers, marketers and blenders. That is borne out by the close correlation between the futures price and the cash prices in the
"We are extremely encouraged ... that an increasing number of cash ethanol transactions are being tied to the contract," Grabiner said. "Major companies are using the daily settlement prices to mark-to-market their ethanol exposure."
The proportion of physical deliveries used to settle open interest positions shot up to around 70% in April from around 20% in March, marking a new peak but still below the level of around 95% seen in September 2005.
Each CBOT futures contract represents 29,000 gallons of ethanol, approximating one rail car. With the closing price on Tuesday of $2.79/gallon, each contract represents around $81,000 - putting it in the same league as the current values of around $74,000 for the New York Mercantile Exchange's light, sweet crude contract and around $90,000 for its unleaded gasoline contract.
Although CBOT trumpets the growth in ethanol turnover, the numbers remain relatively small. Through the first three weeks of April, average daily turnover reached 28 contracts, Grabiner said, doubling the daily average of 14 in March and dwarfing the collective average of fewer than 5 per day in the first four months of ethanol trading. The exchange has set a goal of 100 contracts per day by the end of 2006.
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