OUTLOOK ’11: Asia ethanol looks set for new highs on tight supply

05 January 2011 04:30  [Source: ICIS news]

By Heng HuiSugarcane crops are used in making ethanol.

SINGAPORE (ICIS)--Asian ethanol prices are expected to hit record highs this year because of the continued tight supply due to poor crop harvests and strong demand, traders said.

Hydrous ethanol traded at $930-957/tonne (€698-718/tonne) CFR (cost & freight) northeast (NE) and southeast (SE) Asia in December 2010, the highest ever on record because of limited supply and higher corn and sugar prices worldwide, ICIS data showed.

In comparison, hydrous ethanol prices were at around $800-850/tonne CFR NE and SE Asia in the same period a year earlier.

Offers continued to be limited since the start of this year because of the intercrop season in Brazil, which is the world’s largest exporter of ethanol, said traders.

Market players said they were bracing themselves for a large shortage in the second quarter of 2011, as the Brazilian harvest was expected to be delayed and buyers were leaving discussions until close to the shipment loading dates.

The centre-south harvest usually runs from April to November and the area accounts for around 90% of Brazil’s ethanol output.

In the US, the other major source of ethanol, prices were similarly on an uptrend, as the market’s sentiment had been strengthened after the Senate approved a major tax relief bill and ethanol subsidy.

Nearly all of the current supply in Asia is sourced from these two countries as the feedstock corn, molasses and cassava prices in Asia have remained high throughout 2010 and were less attractive, said players.

The tight supply position for all grades of ethanol was attributed to globally poor harvests, which had intensified competition for agricultural raw materials, particularly from the food sector, said producers.

Several Asian producers told ICIS they could get more favourable returns by selling off the feedstocks as food rather than converting them further into ethanol, so production rates have suffered as a result.

Buyers said they were resigned to the uptrend in ethanol prices as it was supply driven. Furthermore, demand from the beverage and industrial sector would remain largely stable this year, they added.

Asia’s hydrous ethanol demand stands at more than 600,000 tonnes annually.

Meanwhile, most buyers said they had already made purchases for the first quarter of this year, but were undecided on the prices of cargoes going forward.

“Prices might break $1,000/tonne CFR Asia,” said a major trader in Singapore.

($1 = €0.75)

For more on ethanol, visit ICIS chemical intelligence
To discuss issues facing the chemical industry, go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Heng Hui
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