INSIGHT: EU fuel ethanol plummets but sanitizer market taking increasing share

Author: Clare Pennington

2020/03/27

LONDON (ICIS)--The Europe fuel ethanol price range plummeted €77-125/cbm (cubic metre) FOB (free on board) Rotterdam to record lows this week on lower consumption, as the industrial and beverage ethanol markets continued to tighten and the fuel production pool is reallocated to traditional industrial markets.

PRICES
The fuel price range settled at €359-432/cbm FOB Rotterdam, with the lower end of the range theoretically eliminating margins for some producers.

Future prices stand at around €380/cbm FOB for June and rise to over €400/cbm FOB Rotterdam for the thirs quareter, as depressed physical prices leave the market with a weak contango in the end of week prices.

The industrial spot truck market meanwhile has seen increased prices and volatility, with some prices heard over €2,000/cbm, but many trades still taking place in the upper end of the ICIS quarterly price ranges.

SHIFTING ALLOCATIONS
Most volumes are traded according to quarterly or bi-annual contract prices, with existing customers prioritised for additional orders.

But structural changes to prioritise buyers such as hand sanitizer and cleaning product producers are leaving other buyers short.

Hand sanitizer producers are also racing to keep up with demand across Europe. Feedstock supply is shorter in some countries than others, as supply becomes more localised, with the UK and Italy particularly tight.

"We have had some buyers not in the sanitizing market that are agreeing not to take more product, and we are prioritising the hand sanitizer market, which they understand" said one UK source previously.

Fuel ethanol producers are also reallocating production to ensure supply for the disinfectant industry, either voluntarily or by agreement with national governments.

Tereos and Cristal Union have their production flexibilities across plants to produce more industrial and pharmaceutical grade ethanol in France, where hand sanitizer production has also increased.

It is possible at some plants to shift output to industrial and to increase overall industrial ethanol production at the expense of fuel ethanol across plants.

Rectification plants such as those in Italy are also up and running, using lower-priced fuel ethanol as feedstock.

USING FUEL AND TECHNICAL GRADES DIRECTLY IN SANITIZERS
The German government has issued a permit for the use of technical bioethanol to make sanitizers, which means fuel ethanol can be used for now.

“This is good news for the supply of our nursing and healthcare system given the current corona crisis,” said German Bioethanol Industry Association chairman Norbert Schindler. The change would guarantee enough supply for healthcare industries given "capacitiese for the production of high-purity neutral alcohol are exhausted through Europe," he added.

A map of Germany production capacities is available here.

Fuel or technical grade ethanol is also being used for sanitizer production in several other countries in Europe, say sources, but to what extent is not yet clear.

"The main issue is the smell; it makes a more unpleasant smell which needs additional ingredients to cover it," said one source. "Obviously this is less of an issue in the current health environment."

It is still not clear if these reallocations are enough to meet demand in all markets, with the UK and Italy still confirmed short on hand sanitizers.

Some in the UK and Italy are also worried about ongoing ethanol supply from other EU countries as producers are forced to focus on local sanitizer supply chains, and possible delays moving products across borders.

Hospitals in the UK are also not releasing information on hand sanitizer demand. Sources say this may have already tripled, with visitors also taking movable bottles home due to lack of supplies in shops, creating increased demand at hospitals with more patients and staff.

But with the INEOS Grangemouth plant dedicating more resources to sanitizers, and the possibility of more imports from the second week of April, this could improve. The UK market is estimated at about 500,000 tonnes of demand most years, and INEOS's Grangemouth capacity is just over 300,000 tonnes.

In Italy hand sanitizer demand is thought to have gone up by 300%, a source said previously.

PRODUCTION COULD STILL FALL FOR FUEL ETHANOL
Several plants have undergone turnarounds, with some possibly extending these in relation to coronavirus control measures and lower demand expectations.

CropEnergies announced last week that its Wanze subsidiary's maintenance was to be extended as a result of coronavirus controls in Belgium, and a second major plant is thought to be extending its maintenance in western Europe.

Some are expecting lower consumption in April than in March, with a drop of around 20% of road fuel consumption per month compared with previous expectations.

Under current prices, production margins have fallen or in some cases may have been eliminated for grain-based producers, where feedstock prices have in some cases firmed.

Europe fuel ethanol prices have also been under pressure from falling prices in the US, with the transatlantic arbitrage window open.

There are also worries about growing calls for biofuel blending exemptions from some blenders in Europe, with similar considerations heard in biofuel blending markets.

In an open letter dated 26 March, biofuel stakeholders in Bulgaria, Czech Republic, Hungary, Poland and Slovakia said “some CEE [central and eastern European] member [state] governments are now considering suspending, or have already suspended, biofuel blending mandates as a response,” to lobbying by “unnamed parties.”

If companies are allowed to cut out biofuel blending entirely, demand will fall even further.

FALLING FUEL VERSUS SOARING TRADITIONAL DEMAND
It is not clear if the drop in prices fully reflects market fundamentals given possible lower production volumes and additional offtake from the industrial pool.

The fuel ethanol market is already playing a major role in an additional 550,000 tonnes per year of demand from the hand sanitizer market for ethanol in Europe, an early estimate from one market participant.

That could cushion a drop in expected fuel ethanol demand by nearly 10% if road fuel demand drops for several months.

But uncertainty in the market is clear, numbers are necessarily woolly and expectations are subject to revision.

INDUSTRIAL AND BEVERAGE SUMMARY
The beverage and industrial markets continue to be increasingly short, with producers prioritising hand sanitizer and cleaning product buyers over other industrial uses. This trend is only likely to continue into the near future, unless fuel or technical grade ethanol can be substituted more widely.

Producers in Italy, France, the UK and Germany are increasingly focused on supplying sanitizer markets, with INEOS, Tereos, Cristal Union and CropEnergies all issuing statements on the matter in the past week.

DowINEOSArkema or BASF have also launched projects to produce hand sanitizers.

Industries outside the cleaning and sanitizer markets are going increasingly short as a result of supply-chain reallocations in an already short market.

Demand for production of packaging, also used for medical supplies, is also ongoing; supply could remain short into the coming months.

For more on products in high demand linked to the coronavirus outbreak in Europe, listen to the ICIS podcast on ethanol, glycerine, PMMA, R-PET and IPA using the link below.

Insight by Clare Pennington

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.