Europe ethanol market to face challenges in 2011 - FO Licht

03 November 2010 17:10  [Source: ICIS news]

GENEVA (ICIS)--Ethanol demand in Europe has been resilient this year and output is set to grow in 2011 despite expectations of high production costs, increasing competition with the food sector and new regulations, an industry executive said on Wednesday.

By next year, Europe’s production of ethanol to increase by approximately 800m litres to 5.3bn litres, said Christoph Berg, managing director of FO Licht.

He was speaking to delegates at the 13th annual World Ethanol Conference in Geneva, Switzerland.

In 2010, following the global economic crisis, “ethanol demand has come back and is developing healthily”, said Berg.

However, during the second half of this year, Berg said raw material costs started to increase and ethanol manufacturers lost margins.

Because of poor crop harvests around the world, agricultural-based feedstock costs have rocketed, he said.

In northwest Europe, cereal consumption has outpaced supply, possibly reigniting the food-versus-fuel debate, Berg said.

He added that high cereal prices could last into 2011, while gasoline prices remain relatively steady.

In Brazil, a major producer of ethanol, droughts this year have affected the harvests of sugar cane and corn, pushing prices up to record highs and therefore raising ethanol manufacturing costs, according to Berg.

In addition, ethanol’s competition with sugar has intensified, making it more profitable to sell sugar rather than to convert it into ethanol, Berg said.

As a result, Brazil's exports of ethanol to Europe have been capped, contributing to an expected increase in ethanol demand in Europe, which traditionally benefits from imports from Brazil. 

On top of this, new EU regulations for agricultural and manufacturing processes will be implemented in 2011, which will require the whole ethanol value chain to be certified, said Berg.

This is part of the EU's renewable energy directive, which calls for, among other things, 10% of biofuels to be used in the transport sector by 2020.

“Ethanol will move into uncharted water in 2011, with a challenging cost structure, fragmented regulations and possibly another attack of the food-versus-fuel debate,” he said.

However, it is not all doom and gloom, Berg said, as ethanol prices are expected to remain firm and produce decent returns.

Last month and in the fourth quarter, ethanol prices in Europe increased for all grades, driven by higher agricultural feedstock costs, short supply and robust demand.

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By: Heidi Finch
+44 20 8652 3214

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