15 February 2012 23:59 [Source: ICIS news]
LONDON (ICIS)--An unexpectedly mild winter in Europe has resulted in an oversupply of screenwash, which in turn has helped to undermine demand for industrial ethanol, sources said on Wednesday.
Screenwash manufacturers built up their inventories towards the end of 2011 to ensure that they would not be caught with inadequate stocks in the event of another very cold winter.
However, European temperatures remained unseasonably mild through December and January, leaving manufacturers holding unexpectedly large quantities.
This in turn has limited demand for industrial grades of ethanol, including 99% grade and 96% Rectified Neutral (REN) grade.
Most first-quarter contracts for 99% industrial grade were settled in January at a rollover or a slight decrease of around €1/hl ($0.76/hl) from the previous quarter.
By contrast, participants in the market for 96% beverage grade said that nearly all of their first-quarter contracts had been concluded either at a rollover or an increase of €1/hl.
French and German prices for 99% industrial grade are assessed by ICIS at €80–83/hl FD (free delivered), with Italian prices at €87–89/hl FD and UK prices at £880–920/tonne FD.
One reason for the weak price trend on 99% grade has been the availability of competitively priced synthetic ethanol, which has encouraged producers of fermented ethanol to keep their prices in line.
However, synthetic producers’ margins are under pressure following the €99/tonne rise in the February ethylene contract price, prompting one European producer to seek increases of €65/tonne for March, which is approximately equivalent to €5/hl.
Prices for 96% REN grade were recently described as holding steady in the low €70s/tonne ex-works Rotterdam.
Participants had expected the European market for 96% REN grade to remain structurally short in 2012, as unfavourable exchange rates make Europe an unattractive destination for Brazilian tonnes.
However, sources said that demand for imports is currently low, because a large proportion of imported material is used to produce screenwash.
Domestic producers of 96% REN grade are understood to be less affected, as they focus on supplying ethanol to comparatively stable derivative markets, such as the food sector.
Plunging temperatures this month have done little to reduce screenwash inventories; sources say this is because Europe is experiencing a “dry” winter rather than a wet one, which means there is less snow and ice, and therefore less need for screenwash to remove it.
One ethanol producer said the winter started so late that large quantities of screenwash will have to remain in storage until next year.
($1 = €0.76, €1 = £0.84)
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