Rollovers, minor changes targeted for Europe Q2 ethanol prices

13 March 2013 23:59  [Source: ICIS news]

By Samuel Weatherlake

LONDON (ICIS)--Initial price ideas for second-quarter contracts in the traditional ethanol market were beginning to emerge on Wednesday as contract participants opened their negotiations.

While price stability was widely anticipated, some sources indicated that they would be seeking modest increases or decreases.

The extent to which individual grades are vulnerable to import substitution will be a major consideration in determining prices, in addition to feedstock costs and seasonal factors.

Compared with the high-consumption fourth quarter, the first quarter is usually a quiet period for the 96% beverage grade market.

A producer of beverage grade said that its premium business is performing well, but prices at the cheaper end of the market have come under pressure from Pakistani imports.

The source said it would target a "rollover plus" approach for its Q2 contracts, and suggested that the third quarter could bring larger increases as the 75,000 tonne duty-free import quota for Pakistani material is likely to be exhausted by then.

Another producer described a quiet market with sales volumes at the low end of its forecast for March. The source noted that many buyers are continuing to adhere to a "just-in-time" purchasing strategy to avoid building up too much inventory.

The producer was uncertain what the price direction for the second quarter would be, but observed that wheat prices remain high despite recent decreases.

A third producer said last week that it expects to see stable pricing into the second quarter.

A reseller said it was expecting its Q2 contract prices to roll over in the absence of any drivers to the contrary.

The source noted that a rise in Asian prices means that most of the duty-free quota for Pakistani imports has not yet been used.

While the market for 99% industrial grade ethanol is less affected by seasonal buying patterns, it remains vulnerable to weak macroeconomic performance.

A producer said that demand is quiet and contracts are being fulfilled at rates of approximately 80%.

The source said it is beginning its price negotiations for the second quarter, and will adopt a "rollover plus" strategy. The seller said it is prepared to accept some loss of sales volumes if necessary.

A producer of synthetic ethanol noted that its ethylene costs increased by €50/tonne ($65/tonne) in March, which meant it would have to raise its Q2 ethanol prices.

A major buyer said it is expecting price decreases, based on lower seasonal demand for de-icing products and strong competition among European ethanol suppliers. The source said its demand will be stable from the first quarter.

A third producer last week described demand as very calm with few extra enquiries, while availability was good. The source suggested that small increases of €2-3/hl should be possible for Q2 contracts, based on higher feedstock costs.

A UK-based reseller said that many customers are buying less than they did in 2012, and there are no signs that the situation is likely to improve.

A European reseller said it had no definite position regarding Q2 contract prices, but thought it would probably seek rollovers.

Most sources say that imports have exerted downward pressure on pricing, but feel that the impact has not been too severe. Competition for market share remains quite strong.

A reseller of 96% Rectified Neutral (REN) grade ethanol said that the market remains under pressure, and Q2 contract prices are likely to fall by €2-3/hl.

Last week, a buyer said it had no specific price ideas for Q2 contracts, but mentioned a possible target of €60/hl FCA (free carrier) Rotterdam. This compared with its Q1 contract settlements at €61-63/hl FCA Rdam.

European temperatures plunged this week, but sources considered the peak consumption season for screenwash, a major outlet for 96% REN grade, to be effectively over.

Molasses-based 96% beverage grade ethanol prices are currently assessed by ICIS at €75-80/hl FD (free delivered) France and Germany, while prices for 99% industrial grade are assessed at €78-82/hl FD France and Germany. Spot prices for 96% REN grade ethanol were heard at €63-65/hl FCA Rdam.

($1 = €0.77)


By: Samuel Weatherlake
+44 20 8652 3214



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