Market and product
European ethanol physical price curve moves into contango
The European ethanol physical price curve moved into contango this weekas persisting high inventory in April collided with views that May couldbring improved demand, sources said this week.
A standard 1,000 mt fuel ethanol barge for delivery in April wasunderstood to be trading at an average discount of Eur3-5/cubic meter($3.90-6.50/cu m) to what buyers are willing to pay for cargoes loading inMay, sources said.
In early European trading hours Friday, a 1,000 mt fuel ethanol bargewas reportedly sold at Eur625/cu m FOB Rotterdam for next week's shipment,while bids for product delivering in May were heard at Eur628/cu m FOBRotterdam, according to market sources.
In the meantime, non-deliverable May ethanol swaps were seen discussedat Eur628-632/cu m, trading sources said. European ethanol swaps settle onthe average spot physical price published during the contract month.
A contango structure should typically not significantly exceed the costsinvolved in holding stocks of the product for forward delivery, also known asthe cost of carry, as a wide gap could trigger an arbitrage.
The eurozone's slumping economies combined with a longer-than-usualwinter period combined to keep a lid on gasoline consumption during the firstmonths of 2013, sources said.
Gasoline uptake is crucial in determining how much ethanol is purchasedby refiners and blenders as it typically constitutes around 5 to 10% of thefinal gasoline composition sold at the pump.
Expectations of a stronger gasoline market in May has lifted sentimentamong ethanol buyers and sellers in Europe, who may need buy more additionalvolumes of the bio-additive once current stocks are cleared.
Ethanol production in Europe is currently capped due to the recentshutdown of major facilities in the Netherlands and in the UK amid weakmargins.
The two plants, operated by Spain's Abengoa in Rotterdam and UK's Ensusin Wilton on Teesside, amount to over 850,000 cu m/year in productioncapacity, or around 15% of annual European demand for the biofuel.
Trimmed European capacity is unlikely to be substituted by significantimport volumes in May as the European ethanol spot price is currently nothigh enough to attract shipments from either the US or Brazil, the largestworld's exporters, sources said.
A standard 1,000 mt fuel ethanol barge for delivery in April wasunderstood to be trading at an average discount of Eur3-5/cubic meter($3.90-6.50/cu m) to what buyers are willing to pay for cargoes loading inMay, sources said.
In early European trading hours Friday, a 1,000 mt fuel ethanol bargewas reportedly sold at Eur625/cu m FOB Rotterdam for next week's shipment,while bids for product delivering in May were heard at Eur628/cu m FOBRotterdam, according to market sources.
In the meantime, non-deliverable May ethanol swaps were seen discussedat Eur628-632/cu m, trading sources said. European ethanol swaps settle onthe average spot physical price published during the contract month.
A contango structure should typically not significantly exceed the costsinvolved in holding stocks of the product for forward delivery, also known asthe cost of carry, as a wide gap could trigger an arbitrage.
The eurozone's slumping economies combined with a longer-than-usualwinter period combined to keep a lid on gasoline consumption during the firstmonths of 2013, sources said.
Gasoline uptake is crucial in determining how much ethanol is purchasedby refiners and blenders as it typically constitutes around 5 to 10% of thefinal gasoline composition sold at the pump.
Expectations of a stronger gasoline market in May has lifted sentimentamong ethanol buyers and sellers in Europe, who may need buy more additionalvolumes of the bio-additive once current stocks are cleared.
Ethanol production in Europe is currently capped due to the recentshutdown of major facilities in the Netherlands and in the UK amid weakmargins.
The two plants, operated by Spain's Abengoa in Rotterdam and UK's Ensusin Wilton on Teesside, amount to over 850,000 cu m/year in productioncapacity, or around 15% of annual European demand for the biofuel.
Trimmed European capacity is unlikely to be substituted by significantimport volumes in May as the European ethanol spot price is currently nothigh enough to attract shipments from either the US or Brazil, the largestworld's exporters, sources said.
Source:http://www.platts.com/
