FocusEPCA '11: Europe ethanol stable-to-firm in October, Q4

03 October 2011 17:52  [Source: ICIS news]

By Heidi Finch

BERLIN (ICIS)--European ethanol prices are likely to be stable-to-firm in October and the fourth quarter due to limited imports and healthy demand, market players said on Monday.

This is despite ongoing economic uncertainty and insufficient new capacity globally, sources said on the sidelines of the European Petrochemical Association (EPCA) meeting.

Scarcity of imports is the overriding factor for firm prices over the last few quarters.

Imports - necessary to supplement European production - are lacking and are not advantageous enough because of good domestic demand, favourable prices and the strength of the US dollar against the euro.

“Imports will not come to Europe unless prices are high enough,” said a trader

Additionally, demand from the main downstream end-sectors such as pharmaceuticals and cosmetics are holding up reasonably well as they are fairly resilient to economic concerns.

There are, however, some suggestions that industrial demand is slightly slower than expected as it is more affected by worries over the economy.

Aside from general demand, a seasonal uptick in offtake in the beverage sector is also expected in the approach to the Christmas holiday period.

Also, there is a possibility of a tax increase on alcoholic beverages in some European countries from 2012, which could cause some pre-buying, especially if higher prices are likely.

The combination of the import deficit for industrial 96% Rectified Neutral ethanol (REN) in Europe, as well as the expected additional demand from the screenwash sector, could also lead to firmer prices.

However, some sources suggest that this effect could be mitigated by the fact that some players committed to volumes for the screenwash sector earlier than normal this year as they try to avoid a repeat of 2010 when supply was particularly short due to the harsh winter conditions, along with missing import volumes.

They also said that due to the unseasonably warm temperatures in Europe, there is less need to buy ethanol for the screenwash sector for the time being.

Additionally, there is also a general reluctance among buyers to limit stock-build, given the fragile economic climate.

On top of this, there is a general underlying trend for growing food and fuel demand, which means increased competition for feedstocks and therefore overall ethanol supply.

Better economics for agricultural commodities, such as sugar, over recent months has also meant European ethanol producers prefer to sell off as sugar rather than convert to ethanol, which has put further strain on supply and kept prices firm.

Although there have been recent falls in agricultural commodities, linked to volatility in the financial markets, ethanol sellers maintain that feedstock costs remain relatively high and support ethanol price levels.

Some sellers are targeting increases of a few euros as a minimum in October and the fourth quarter, particularly for low-end business, on the back of ongoing restricted supply.

Buyers and some distributors, however, consider stable prices more feasible, in view of the already record-high price levels over the last few quarters and the current economic uncertainty.

Buyers are hopeful that new crops in Europe will help to improve ethanol supply, although sellers maintain that production constraints are a limiting factor.

There is some expectation that there may be some improvement in synthetic supply for industrial 99% and that this could bring some price relief.

This follows the end of production problems and turnarounds over recent months.

One synthetic ethanol producer, however, maintains that stocks have come from a particularly low level and the market remains tight-to-balanced, despite better synthetic production.

Third-quarter European 96% neutral molasses beverage ethanol prices were assessed in the mid-to-upper €70s/h (lower $90s/h) FD (free delivered) as a minimum and up to the low €80s/hl FD, depending on country.

In the same period, 96% Industrial REN prices remained untraditionally on a par with neutral beverage, albeit at the lower end of the range, and industrial 99% prices were in the low-to-upper €80s/hl for industrial 99%.

($1 = €.75)

By: Heidi Finch
+44 20 8652 3214

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