The T2 price has been on an upward trajectory over the last couple of weeks and at Eur495/cu m FOB Rotterdam Wednesday, it is the highest it has been in four months.
This was attributed to a combination of tight fundamentals and bullish sentiment, although sources still expressed surprise at the move since this is typically low demand season.
Demand seems to be unusually healthy for the time of year, while imports from Central America that usually reach Europe at this time of year will not be as large as they normally are, source said. This is because other destinations are currently more attractive than Europe so this could also be a factor for the tightness.
But fundamentals aside, much of the movement is amplified by sentiment and is not strictly driven by demand and supply. Sources said a major producer was buying on paper, which could be providing the market with bullish indications.
In addition, much of the activity has been driven by market participants hedging their volumes after the end of the tendering period, while refiners may also be hedging because of rising oil prices, sources said.
The market structure appears considerably flatter too, especially between the first and second quarters, which were previously in contango, but now the front of the curve has come up, thus removing the incentive for sellers to rush to liquidate cargo.
Still, the strength of the market has left sources baffled, especially as it is not just the front but the entirety of the curve that has shifted higher. "The market has priced in a lot of capacity return that hasn't really materialized but is on the horizon," a source said. "I understand the price dynamics in the front but I am most puzzled by the general move up the whole curve."
With feedstocks receding further, margins are continuing to see gains from strong T2 prices. At Eur161.50/mt Wednesday, Euronext milling wheat has come down significantly from the highs of Eur168.75/mt last week and the theoretical milling wheat crush spread rose Eur8.20/mt on the day to Eur58.95/mt, also a four-month high. Euronext corn has been less volatile, and at Eur165/mt allows for a Eur49.50/mt theoretical crush margin, an 11-week high and up Eur4.82/cu m from Tuesday.
The market is now looking to December for new indications, and so far the paper market is still buoyant. "It will be interesting what happens now that we're in the new pricing month," a source said. Another source said the tightness was likely to continue in the first half of December as there are typically a lot of nominations before the end of the year, but did not see how this could continue thereafter.
