LONDON (ICIS)--European fuel ethanol producers margins are in the red, with prices having fallen to €424.00-430.00/cbm FOB (Free on Board) Rotterdam in the week leading to March 28, sources said late on Wednesday.
Prices have hit their lowest levels since September 2016, when they dropped to €420/cbm FOB Rotterdam.
Producer sentiment is extremely bearish, with traders, producers and buyers suggesting that the current period of low prices will extend into Q2 and possibly Q3 on the back of high storage and production volumes.
A trader said they believed European fuel ethanol markets are in a long term crisis due to EU policy, citing their expectations of a cap on crop-based biofuels of below 7% under the Renewable Energy Directive II and lack of sufficient E10 uptake across Europe to meet production capacity.
"A lot of people have full tanks so it is very difficult to sell," another source said. "So there is even more pressure to sell with no uptake. It will take a few weeks when the situation changes, if ever, to recover."
Several players said that without a major industry event such as a swing plant shut down, or reduced production rates from all producers at once, they did not expect prices to rise much before the end of Q3 (see interactive infographic on plant activity and prices).
Producers with by-product such as corn oil or a larger proportion of long term contracts with greenhouse gas-saving premiums attached are thought to be faring better than most producers. All producer spoken to in this market segment are saying that their fuel ethanol margins are now negative.
Growing demand for biodiesel in some countries is also felt to be contributing to the expectation that fuel ethanol prices will not rally in the coming quarters without a major industry event, such as a plant supplying the ARA hub or surrounding area going offline. Flows of fuel ethanol into the ARA region remain high, while demand from Spain and France is low.
Although Estonia and Romania are due to increase fuel ethanol consumption, local market players think real demand for more fuel ethanol from Romania will materialise gradually because of limited local blending and supply capacities.
The same has been said about the Czech Republic, although some have seen increased fuel ethanol demand in the region recently. In 2017 Unipetrol stopped ethanol production at its site in Litvinov due to its lack of profitability and value in the product chain, a company spokesperson told ICIS. The facility has been mothballed and there are no plans to bring the plant back online, he said.
Fuel ethanol vs Eurobob gasoline (€/cbm)
(Picture source: Design Pics Inc/REX/Shutterstock) (update adds additionalcomment in fifth paragraph)