Europe T1 and T2 fuel ethanol prices diverge

14 October 2008 11:45  [Source: ICIS news]

LONDON (ICIS pricing)--The European domestic (T2) and the import (T1) markets for fuel ethanol have become separate and distinct in terms of pricing due to current global volatility, said market sources on Tuesday.

 

“The market at the moment makes no sense. The T1 market has come down far too quickly,” said one broker.

 

Bids and offers in the T1 market were heard between $540-570/cbm this morning, while T2 prices were pegged between €580-595/cbm ($784-770/cbm), both on a free on board (FOB) Rotterdam basis, said market sources.

 

The T1 prices above work out at €591-614/cbm at Tuesday’s exchange rate with duty - significantly higher than those in T2.

 

In a balanced market the T1 FOB Rotterdam dollar price would reflect the price of Brazilian material plus shipping. The T2 price would then reflect the dollar-euro exchange rate plus €192/cbm duty.

 

Since the Brazilian real tumbled to a two-year low of R$2.31 per dollar a week ago there has been downward pressure on prices in the T1 market.

 

Market sources said that combined with the global financial crisis this had prompted panicked selling in the T1 market.

 

The T2 market, being less liquid, had been insulated from this crash.

 

“European producers are more likely to sit on material and wait for better prices, unlike the T1 traders who are nervous and want to sell,” said one market source.

 

Both T1 and T2 were assessed as being somewhat long.

 

Opinions differed as to whether T1 prices would rebound as markets found stability or if oversupply would push prices down further.

 

($1 = €0.74)

 

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By: Rachel Howat
+44 20 8652 3214

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