T2 ethanol prices surged Eur40.25/cu m on the week to a more than seven-month high at Eur578.25/cu m Friday owing to shortness in supply in the Rotterdam region.
Lack of product on offer has been a feature of the market since the end of 2016 while demand has remained firm, but the drawing down of stocks combined with capacity under-utilization as well as plant maintenance has led to a rally in the first week of 2017.
Although demand may have somewhat increased, sources said the rally is mainly driven by the lack of supply which is surprising considering that production margins are very attractive.
Even with EU milling wheat at Eur170.75/mt, the theoretical crush spread is at a six-month high at Eur117.23/mt, up Eur30.80/mt on the week. Similarly the theoretical corn crush margin climbed Eur34.85/mt on the week to Eur120.60/mt, an over seven-month high, with EU corn at Eur169.50/mt. Even though UK feed wheat prices have been steeply on the the incline, at Eur166.29/mt, this still allows for a Eur129.27/mt theoretical margin, up Eur29.80/mt on the week to a near-six month high.
Sources have attributed the lack of adequate additional supply to European plants not producing as much as such healthy margins would command. This could be related to technical factors resulting in low run rates or plants being in maintenance, as well as less production from French producers due to diverting resources into sugar.
Uncertainty continues regarding the volumes coming out of the Alcogroup Rotterdam plant, but a trader said they had seen Alcodis shipping volumes into Rotterdam -- "at least three cargoes of 5 kt in December" -- from France and the UK, suggesting they may not be running at full rates. The rally is expected to continue over the next couple of weeks and a source said they expected to see imports from the US if European producers are not able to cover the local demand.
"No doubt we are going to go into the 600s because product is needed and I don't see who is selling" said the source.
