FocusIndian etac may rise on government fuel blending programme

18 April 2013 04:32  [Source: ICIS news]

By Trisha Huang

MELBOURNE (ICIS)--The prices of ethyl acetate (etac) in India may rise as the government rolls out its fuel blending programme, market sources said on Thursday.

The prices of etac, which is produced mainly from the esterification of acetic acid with ethanol, may increase as India implements a nation-wide blending of 5% ethanol in gasoline, the sources said.

The average prices of etac offered by Indian etac makers have been largely range-bound at $930-940/tonne (€716-724/tonne) FOB (free on board) India between January and April 2013, according to data compiled by ICIS.

The largely stable export prices tracked the consistency in rupee-denominated local etac pricing over the same timeframe, underpinned by the mostly steady costs of feedstock ethanol since January.

Domestic etac prices have similarly been range-bound at Indian rupees (Rs) 50.00-51.00/kg ($922-941/tonne) EXW (ex-works) since January, information gathered by ICIS showed.

However, as the Indian government’s fuel blending programme took a step closer toward implementation, several etac makers said they expect the cost of feedstock ethanol to be driven higher by its rising demand as a transportation fuel.

Ethanol is predominantly produced from sugar molasses in India, the world’s second-largest producer of sugar.

State oil companies will start buying anhydrous ethanol from local distilleries at prices as high as Rs41-42/litre, market sources said, quoting local media reports.

To meet the government’s target of a nation-wide blending of 5% ethanol in gasoline from June, state oil companies are now seeking bids from ethanol suppliers abroad by tender, in addition to purchasing from local producers, the sources added.

The measure, which will boost demand and prices for fuel ethanol, can potentially buoy the cost of industrial ethanol, said etac makers.

At the same time, the prospect of higher returns may entice those etac makers with integrated ethanol facilities to boost ethanol sales and curtail etac output, leading to tighter supply of etac, an etac producer said.

The prices of ethanol softened to Rs29.00-30.00/litre EXW in April in response to the delay in the fuel blending programme, market sources said. Prices prevailed at Rs31.00-32.00/litre EXW throughout January and March.

The prices of co-feedstock acetic acid, meanwhile, were up by 3.4% since early January to settle at $450/tonne CFR (cost & freight) south Asia on 12 April, ICIS data showed.

Aside from a potential hike in the cost of feedstock, several etac producers said a growing issue facing the etac industry is the worsening water shortage in parts of India, a consequence of below-average precipitation during the 2012 monsoon season.  

Even though a majority of etac plants are continuing to operate normally, rising competition from farmers for the limited water supply may lead to tighter water restrictions for industrial usage and force plants to either shut or reduce operating rates, the producers said.

As such, any delay in this year’s monsoon could have serious consequences on industrial output, the producers added.

“Etac prices should increase to Rs54-55/kg as fuel ethanol could be priced at Rs35-36/litre by May,” said an etac producer.

“Integrated producers may opt to sell ethanol to the government instead of using it to produce etac,” a second producer said.

However, not all the producers share the bullish market outlook.

A third producer said that while the prices of anhydrous ethanol used for fuel blending may rise, it expects a comparatively small gain in the cost of hydrous ethanol, or the variety used in etac production.

“[Upon the implementation of the fuel blending programme] ethanol could initially go up by Rs1/litre, which means etac should go up by Rs1/kg in May,” said the third producer.

“But I am not confident that prices will go up because supply is more than demand,” the third etac producer added.

A growing supply overhang in India along with easing downstream demand has contributed to the flat etac prices since January.

Etac capacity in India was expanded in late 2012 by the November commissioning of Gujarat Narmada Valley Fertilizers & Chemicals (GNFC)’s new 50,000 tonne/year plant at Bharuch in Gujarat state.

The first etac producer conceded that any feedstock-led etac price gain may be overshadowed by the length in supply.

“There has been a slowdown in downstream industries, including flexible packaging and the pharmaceutical sector,” the first producer said.

Demand from the pharmaceutical sector, which accounts for roughly 40% of domestic etac consumption in India, has been dented by slow export sales of finished product to the key European market.

The imposition of power cuts in Hyderabad, where several large pharmaceutical plants are located, has further cooled demand for etac, the third producer said.

In addition to easing domestic consumption, demand for etac from buyers abroad may be crimped by capacity expansion in the Middle East.

Ahead of the start-up of Saudi International Petrochemical’s  (Sipchem) new 100,000 tonne/year etac/butyl acetate (butac) swing plant in Jubail, Saudi Arabia, several Indian producers said there will be some impact on their sales to the Middle East, until now a key market for Indian etac.  

India sells 20,000-25,000 tonnes/year of etac to the Middle East, according to estimates by market sources.

“Even in northwest Europe, there has been a slowdown [in demand for imported etac],” the second etac producer said.

As such, the chances of etac rising in tandem with higher ethanol costs may be limited, some producers conceded.

“It’s going to be interesting to see what will happen to prices under increased competition,” said a trader, referring to rising etac supply in the Middle East.

“There will be pressure on [etac] producers to increase prices [in tandem with the higher feedstock costs], but ultimately, prices will be determined by supply and demand,” the trader added.

($1 = €0.77 / $1 = Rs54.21)

By: Trisha Huang

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