26 September 2007 19:27 [Source: ICIS news]
By Charles Shaw
On top of the cost issue, imported Brazilian material has put continuous downward pressure on prices.
Having begun the year at an average of €625/cbm (cubic metre) free on board (FOB) Rotterdam, according to global chemical intelligence service ICIS pricing, fuel ethanol prices have been moving downwards. By July, they had fallen over €100/cbm to just €523.50/cbm FOB
Today, sellers are being forced to make some difficult decisions. Last month, German producer Verbio was forced to reduce capacity at its 200,000 tonne/year plant at
Interestingly, it said the move would be partly compensated by selling off its cereal stocks, the price of which had grown impressively since having been purchased.
Last week, major Spanish producer, Abengoa, announced it would stop production at its 200,000 cbm/year
But unlike in most petrochemicals markets today, news of a stoppage at a major plant does not send the shockwaves one might expect.
For this is a market that has become all but dominated by competitively priced, imported material.
With North American import demand drying up,
“Something has to give”, were the words of one German ethanol trader on Wednesday.
“At this rate, only the big fish will survive. It is up to the politicians to intervene or this will become an import market”, it added.
Fears are growing for some of the smaller companies, many of whom gambled much on the expectation of healthy demand and concurrent strong prices in
“Companies such as Abengoa [which posted a 20% increase in operating profit for the first half of 2007 last month] will be fine.
But some of the Eastern Europeans, who borrowed heavily in the last couple of years, are now panicking”, said one
Accordingly, farmers, usually required to leave 10% of their land uncultivated, could now fully exploit their grounds.
This could increase cereal output by 10m-17m tonnes, providing what some say will be a welcome relief for European producers.
“This can only be a good thing”, said one fuel ethanol producer last week.
“The feedstock situation has become unmanageable in the last few months. The EC has a responsibility to protect this industry,” it continued.
However, others point out that the fruits of expanded cereal growth will not come for at least nine months, and that even then it will be hard to notice any profound change.
It will take more than a fractional increase in sowing space to affect any real change, they say.
Ultimately, it is not all doom and gloom. The European Union (EU) has ratified strict biofuel blending targets to be met by 2020.
Biodiesel is by far the more popular “green fuel” at present, but is becoming less so amid the food-for-fuel debate.
Several Brussels-based policy makers say new bioethanol production should be promoted for being a less controversial option.
Indeed, a number of projects have sprung up this year.
What is certain is that producers new and old will continue to count on legislation like this to create the level of demand they need.
($1 = €0.71)
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