Imports of E90 to continue undermining European fuel ethanol values

08 February 2012 15:07  [Source: ICIS news]

LONDON (ICIS)--Imports of US E90 (90% ethanol blended gasoline) continue to flow into the European market and are expected to exert downwards pressure on European fuel ethanol values until the end of the year’s second quarter, according to sources.

In the EU, denatured ethanol is subject to a flat duty of €102/cbm ($136/cbm).

However, E90 is currently subject to an import duty of just 6.5%, roughly €33/cbm at current prices, as some EU member states classify it as a chemical rather than as denatured ethanol.

The fact that E90 enjoys a lower import duty means its prices are very competitive when compared with European T2 values. This has resulted in softer T2 numbers recently and this scenario is now likely to continue throughout the second quarter.

Renewable Energy Directive (RED) certified T2 fuel ethanol is trading at levels of €560-570/cbm FOB (free on board) Rotterdam, duty paid, while sources quote prices for E90 around €510/cbm FOB Rotterdam on a T1 basis, with 6.5% duty payable on top of that, making the user price about €543/cbm.

Market sources had expected the inflow of imports to decrease during 2012 as the EU had voted in favour of amending import legislation to reclassify E90 as denatured ethanol.

But the publication of this legislation has been subject to delays and sources say that, even if it is published imminently, there will be a three-month holiday period during which, imports of E90 can still legally be imported into the EU under duty of 6.5%.

In addition, the expiration of the US Volumetric Ethanol Excise Tax Credit (VEETC) in December was expected to result in a decrease in US production rates and competitively priced US imports.

However, sources say US ethanol production rates remain at very healthy levels.

“The US is still producing a lot [of ethanol] and it feels likely we will see the inflow of E90 continuing in Q2 as the arb is wide open,” said one source.

US inventories are increasing and prices are looking more bearish, according to the source, which means it is likely there will be a steady flow of imports to Europe for the foreseeable future.

($1 = €0.75)

For more on ethanol visit ICIS chemical intelligence

By: Sarah Trinder
+44 20 8652 3214

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