€1-2/hlt hikes talked for Europe industrial ethanol

21 December 2007 14:59  [Source: ICIS news]

LONDON (ICIS news)--First-quarter 2008 industrial ethanol prices in Europe are likely to increase by €1-2/hectolitre (€12.7-25.3/tonne) in the new year on higher energy, logistical and raw material costs, industry sources said on Friday.

Producers said it had become necessary to pass on these costs, which have continued to rise in the second half of 2007. Substantial first quarter hikes in the price of the feedstock ethylene are also a factor in producers’ decisions to target higher prices.  

Both ethylene and propylene quarter one contracts were agreed at record highs. The intense pressure from record upstream naphtha and crude oil pricing in the fourth quarter was the driving force behind increases.

“The economics speak for themselves,” said one producer.

“Our decisions are normally largely motivated by simple supply and demand, but when margins are so low we have to push through an increase,” the seller added.

Benchmark crude oil futures in London have increased by 38% since the start of 2007.

Another producer said that while ethylene increases were significant, logistical and energy costs were the primary concern. It added that it was already targeting increases of €1.5/hlt in Europe and £15/tonne in the UK.

“Ethylene goes up but you just have to live with it,” the producer said.

“We will be going for increases on the back of energy and logistical costs, fundamentally,” the source added.

Opinions were mixed regarding corresponding increases in the fermentation ethanol market. Fermentation market sources mostly said that the market was more competitive and that producers were more nervous about moving prices as a result.

“The conditions are just the same. Really we should be moving prices up,” said one European fermentation ethanol producer.

“However, we shall have to see what the French players do. I am sure all sellers would like to follow the lead of the synthetic [industrial] guys, but they may not have the confidence to do so”, the source added.

Industrial ethanol is used mainly as a solvent and in chemical synthesis.

($1 = €0.70)

By: Charles Shaw
+44 20 8652 3214

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