SE Asia anhydrous ethanol may gain on reduced US supply

Hazel Kumari

15-Aug-2014

Focus story by Hazel Kumari

corn harvestSINGAPORE (ICIS)–Spot anhydrous ethanol prices in southeast Asia are likely to increase on tightening supply from the US, where corn prices and domestic ethanol demand are on the rise, industry sources said on Friday.

Corn is being processed into anhydrous ethanol.

Ethanol prices have been rangebound at $680-700/cubic metres (cbm) CFR (cost and freight) SE (southeast) Asia since 6 August, according to ICIS data.

The Philippines is a key importer of ethanol in southeast Asia.

Recent gains in US corn prices have been bolstering market sentiment amongst sellers of anhydrous ethanol in southeast Asia, but buyers have so far taken a wait-and-see approach on the market.

Corn futures for December delivery on the Chicago Board of Trade closed at $3.735 a bushel on Thursday, up 1% from the previous day and gaining for the fourth straight consecutive trading session, according to newswire agency Bloomberg.

The US, the world’s biggest corn producer, is projected to yield more than 14bn bushels of the agriculture commodity in 2014.

This year will be the first time that US corn production will breach the 14bn-bushel mark, but the official projections fall short of market expectations, thus driving up corn prices.

The strong gains in US corn futures should eventually nudge up prices of anhydrous ethanol in Asia, a southeast Asia-based trader said.

There are talks in the market that Brazil might start importing material from the US for fourth-quarter shipments given the competitive prices of US ethanol, industry sources said.

Expectations of record yield of feedstock corn in the US this year had prompted ethanol producers in the country to ramp up production, which pushed down the prices of the green fuel.

“When the US-to-Brazil arbitrage opens, there will be lesser US supply available for Asia. To add to the shortage, there are train cars transporting ethanol stranded on the tracks [in the US] and no one knows how long it will take before these train cars will start moving again,” said a trader.

Ethanol supply in southeast Asia is currently tight, partly on limited availability of spot cargoes coming from Vietnam, market sources said.

A number of Vietnamese producers are running their plants at reduced capacity due to shortage of feedstock cassava products, and are focusing on supplying to the domestic market.

In the Philippines, two key domestic producers were heard running at reduced capacity because of operational problems. As a result, these two producers were unable to meet their local monthly allocation volume to their buyers.

Consequently, the country’s gasoline blenders would have to return to the spot market to seek September and October ethanol shipments to plug production shortfalls, according to sellers.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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