FocusUK beverage ethanol sellers cheer demand

01 December 2008 17:06  [Source: ICIS news]

By Rachel Howat

LONDON (ICIS news)--Strong seasonal demand may have helped producers to push through a £5/hectolitre (€6/HLT, $7.50/HLT) price hike on UK beverage ethanol prices ahead of proposed first-quarter increases, a market source said on Monday.

“With the bottlers running fairly strong at this time of year, it may have been easier to push the increase through now,” said Ian Kersey, a business manager at UK-based petrochemical major INEOS.

While price increases for the start of 2009 have been mentioned recently, market sources said it had not been expected that they would take place before year-end.

The recent depreciation of the sterling has hit eurozone-based producers hard, as the exchange rate made UK free delivered (FD) prices lose ground compared with their European counterparts.

“The exchange rate resulted in Q4 being bad for us,” said Ed Coenen, a senior sales manager at Royal Nedalco.

“So, for Q1, we will take the continental prices of €68-70/HLT and convert that into pounds. If people are not willing to pay it then we will ship into Europe instead, as to sell at a discount in the UK makes no sense,” he said.

Monday’s exchange rate put the FD UK price equivalent to around £60/HLT, said Coenen.

A UK distributor said that, although customers were shocked by the severity of the price increase, the confirmation of a deal at £54/HLT this soon before first-quarter negotiations indicated that buyers would accept some, if not all, of the proposed increases from producers in the next quarter.

The extent to which buyers would fight the price increases was likely to depend on end-user demand.

Beverage-ethanol demand has so far shown no signs of weakening since the beginning of the economic downturn, sources said, but the picture is expected to be much clearer after the festive season.

“It’s not a brilliant Christmas so far,” said one UK buyer. “But the demand is still there, and hopefully it won’t tail off too much in January.”

If demand holds up well enough to push through the proposed increases, this will bring prices for UK beverage ethanol with 96% purity into parity with those for industrial grade ethanol with 99% purity.

In the UK, the majority of industrial ethanol comes from synthetic production, rather than fermentation.

Some market players had suggested that, as the price of ethylene has fallen dramatically - with significant decreases widely expected for the first quarter - synthetic producers may lower prices.

“What customers must understand is that we need to get a return to cover the past 18 months, which have been extremely difficult, and the whole ethanol market needs to be taken into consideration, not just the potential change in a particular feedstock,” said INEOS's Kersey.

“We can see some upward movement in the market due to shortness on fermentation product. Also, we have feedstock costs in euros, so are being affected by the exchange rate, although obviously not to as great an extent as the people on the continent,” said Kersey.

In France, a producer of fermentation industrial ethanol selling into the UK market at the start of 2009 would be looking to achieve prices of at least £770/tonne FD UK, or they would rather not sell product into the country, according to a producer.

This is at the top end of the current published range by global chemical market intelligence service ICIS pricing.

Fermentation producers said they are being squeezed on feedstock costs, with the price of molasses rising by 20%.

Market participants have reported a global shortage with poor harvests in Brazil, Pakistan, France and Central America, combined with rising biofuel demand.

($1 = £0.65/€1 = £0.83)

For more on ethanol visit ICIS chemical intelligence
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By: Rachel Howat
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