OUTLOOK ’19: Europe fuel ethanol uncertainty still a feature for 2019

LONDON (ICIS)–European fuel ethanol markets will continue to face vicissitudes and uncertainty in 2019 in the wake of a global ethanol glut and the removal of the EU’s sugar quota in 2017/2018.

Import volumes and duties, as well as upcoming mandates, will also be key forces in the market.

SUGAR
Sugar prices reached a 20-month high in December 2018 after tumbling to record lows earlier in the year, and producers are worried about the effects the removal of the EU’s sugar quota on ethanol production will have on volumes and prices.

The main concern for producers is that Europe’s capacity for ethanol production has increased as a result, making fuel markets more sensitive to sugar prices and sugar players’ ethanol production volumes.

This has the potential to continue weighing on ethanol prices when the wider market sources from a range of feedstocks, including corn, ethylene and wheat.

But as the ethanol 20-month price highs in mid-December 2018 also showed, sugar could simply enable more price volatility and the market will remain sensitive to supply shortages as well as length.

IMPORTS
European ethanol buyers and sellers are likely to continue watching import markets closely.

US fuel ethanol prices are likely to continue capping prices in Europe as China’s tariffs on fuel ethanol provide more incentives for US producers to up export volumes to other destinations.

There are mixed expectations for import levels from the US, as well as Latin American countries such as Paraguay and Peru.

Paraguay is due to lose its Europe tax-favourable Generalised Scheme of Preferences (GPS) status in 2019, but ongoing Mercosur talks with the EU on a trade deal have raised the possibility of some concessions to Paraguay exports, should a deal be reached.

A round of talks between Mercosur and the EU to reach a free trade agreement (FTA) ended in December 2018 without conclusion, however.

The European Commission – the EU’s executive body – is continuing its investigation of US fuel ethanol antidumping duties (ADDs).

The EU had imposed ADDs of 9.5% on US product in 2013, which was then challenged by several US fuel ethanol producers in court.

While recourse through the courts was put off in October 2018, an investigation into the expiry of the duties could end any time before the end of May 2019.

Should ADDs on US ethanol change or be reduced, this could have a profound impact on how much European ethanol prices can increase, as well as volumes available in the market.

Shipments from Peru and the US are expected into Europe in January.

Chinese demand and its tariffs on US ethanol helped to divert demand from Europe for Latin American material in 2018.

However, as some shipments destined to Asia were diverted to Europe late in 2018, it is clear that Europe remains an attractive market for exporters in a global market with growing production capacities.

MANDATES
EU increased mandates for biofuels are likely to increase demand for ethanol in 2019.

Some market participants expect European production capacity outstripping expected demand, which could prove a growing challenge to players in a long market.

The UK’s two fuel ethanol production plants run by Vivergo and Ensus both cited low prices and a challenging ethanol market when they stopped production in 2018.

Ensus is likely to come back online in 2019 should conditions improve, by which time the UK’s future role in fuel markets and on fuel ethanol in Europe should be clearer as the outcome of the UK’s decision to leave the EU becomes less hazy.

According to the US Department of Agriculture (USDA) Global Agricultural Information Network, some European mandate changes in the offing for 2019 include:

– Bulgaria will increase its bioethanol mandate from 7% to 8% in 2019.

– Croatia will inch up its bioethanol mandate from 0.97% to 0.98% in 2019.

– Finland will increase its overall biofuel mandate from 15% to 18% in 2019.

– Ireland will step up its overall biofuel mandate from under 9% to over 11% in 2019.

– Italy will increase its overall biofuel mandate by energy content from 7% to 8% in 2019, as well as mandating that 0.2% of double-counted biofuels and 0.6% of single-counted biofuels be made up of advanced biofuels.

– The Netherlands will increase its overall biofuels mandate from 8.5% to 12.5%.

– Poland’s overall mandate will increase from 7.5% to 8% in 2019.

– Portugal’s biofuel mandate will increase from 9% in 2018 to 10% in 2019,

– In Romania, the percentage of bioethanol in gasoline will nearly double from 4.5% in 2018 to 8% in 2019.

– In Spain the overall mandate will grow from 6% to 7% in 2019.

Mandate rules are subject to change, and how EU-wide mandates are implemented is decided by each member state.

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Focus article by Clare Pennington