27 December 2012 07:26 [Source: ICIS news]
By Andrew Heng
SINGAPORE (ICIS)--Asia prices of hydrous ethanol are likely to rise in 2013, largely because of an expected shortage of Brazilian sugarcane-based product and lower availability from alternative source, Pakistan.
The import prices of hydrous ethanol in northeast Asia firmed by $20/cubic metre (cbm) to $680-720/cbm CFR (cost & freight) northeast (NE) Asia on 19 December, after holding steady since 21 November, according to ICIS data.
Prices were stable from 21 November to 12 December at $660-680/cbm CFR NE Asia on the back of subdued trade.
Market players had withheld their discussions because buyers have sufficient inventories for their first-quarter requirements and there is low availability of cargoes from suppliers.
Trade for hydrous or B-grade ethanol is largely active in northeast Asia, where Japanese alcoholic beverage distillers make up the major pool of end-users.
Most Japanese end-users purchase B-grade ethanol with a minimum cargo size of 2,000-3,000 cubic metre (cbm) from Brazil on a quarterly basis.
Northeast Asian traders said the overall market sentiment has been largely bullish throughout the second half of 2012, pertaining to Brazilian supply for 2013. This is despite a higher sugarcane crop yield forecast by the Brazilian Sugar Industry Association (UNICA).
Exports have been reduced, keeping in line with Brazil’s countrywide policy to increase its fuel ethanol content in its gasoline from 20% to 25% (or E20 to E25) in 2013, according to media reports.
In addition, Brazilian sugar mills are planning to produce more sugar than ethanol.
Feedstock sugarcane output for the 2012/2013 season from Brazil’s centre-south region – where 90% of the country’s sugarcane plantations are located – was up by 3.21% year on year.
However, the country will reduce its exports by 8.11% to 1.7m litres year on year, UNICA data showed.
In addition to the shortage of sugarcane from Brazil, alternative supplier Pakistan may be absent from the northeast Asian market in 2013 as sugar distilleries in this south Asian country hope to gain more lucrative business in Europe.
“Ethanol producers in Pakistan, which are all molasses-based, are targeting higher sales volumes to Europe because they will enjoy a duty free policy, hence making their margins more attractive,” a Singapore-based trader said.
However, some small volumes may be offered to northeast Asian consumers, though these may likely be distressed cargoes or contain a different proportion of sugar with water, a buyer said.
Another smaller yet equally significant supplier, Thailand, may also reduce its exports to the port of Ulsan in South Korea, where end-users in Japan receive ethanol from.
“The Thai government announced an E20 mandate, which will take effect in early 2013,” a Thai distiller said, “so producers are likely to shift their focus to anhydrous or fuel ethanol production instead, leaving less hydrous material for export to Ulsan”.
Hydrous ethanol prices in 2012 were largely below $700/cbm CFR NE Asia. Japanese end-users stocked up in large volumes in the first half of the year, leaving smaller-volume purchases in the second half of the year.
This led prices to be usually low compared with the mid-to-high $700s/cbm CFR NE Asia year on year, according to ICIS data.
With first-quarter 2013 requirements met, offers of Brazilian B-grade product for the second quarter were heard firmer during the final weeks of December as a result of the reduced availability, a northeast Asian trader said.“At the moment, buyers prefer to remain at the side lines as they are uncertain of the second-quarter prices, which rose quite abruptly.
“They have sufficient material, but need to start planning their second-quarter orders, thus [buyers are] waiting for prices to stabilise before committing to fresh cargoes,” a southeast Asian seller said.
“Nonetheless, the buyers are ready to accept that prices may rise further on the back of insufficient supply and may choose to book their second-quarter cargoes soon in order to avoid purchasing at higher levels,” a third northeast Asian trader said.
($1 = €0.76)
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