Signs of increased product availability and aggressive offers pushed T2 ethanol to a near-three-month low at Eur551.75/cu m (about $599/cu m) FOB Rotterdam Monday, down Eur2.25/cu m on the day and Eur34.25/cu m on the week. The drop occurred despite some capacity being off the market for seasonal maintenance.
Prices have been gradually declining since the start of the month, after prices peaked at a 15-month high of Eur664/cu m at the end of February.
Sources have partly attributed the move to some increased supply with some Central American barrels due to arrive in the first half of April, albeit small volumes, while two unsold trains are expected to reach Rotterdam in the second half of the month. In addition, sources said that there are a few offers from plants that have not had spot availability for some time.
Despite some signs of additional supply however, the balance remains uncertain, as more plants go offline for seasonal maintenance. In addition to Suiker Unie's Anklam plant, Cristalco's Reims plant and Tereos' Lillebonne plant, sources also said that Slovakia's Enviral is due to go on maintenance. Equally, since it is not the major plants that are expected to go offline, market participants don't expect it to have a significant impact on the market. Sources also said that as margins are still very good, producers will have an incentive to minimize the time they spend on maintenance.
Theoretical margins for EU milling wheat and corn are currently calculated at Eur105.58/mt and Eur88.03/mt respectively, and although this represents a drop of Eur18.05/mt and Eur31.55/mt on the week, it represents an attractive margin level. On the wheat side, the crush spread has also been supported by declining EU milling wheat prices, which closed on Monday at Eur165.25/mt, down Eur6/mt on the week to a 15-week low.
With the balance tilting only slightly towards more supply, sources have also attributed recent price drops to the market adjusting to an equilibrium level from previously over-inflated prices. "I don't think the amount of product coming in from overseas justifies the move," a source said. "It was too expensive before," another source said, adding that market participants still see more downside to the market with the caveat that "this market tends to overdo it."
Meanwhile, the market structure lends itself for participants to cash in the backwardation. "Maybe people are creating shorts because they think the market is going down," a source said. "People are selling the last kt's they have in March, if they can buy cheaper in April," another source said.
Considering that some of the sellers are oil major end-users, this could result in some additional buying in April in order to cover any shorts. "The more they sell [now], the more they will have to nominate to the producers [next month]," a source said.
Looking ahead, the potential for increased long-term supply remains limited. Sources said the prospects of sugar producers switching to ethanol production are unlikely, as the sugar industry builds stocks before deregulation in the autumn. Meanwhile, a potential reopening of Abengoa's Salamanca plant -- following the Spanish firm's agreement earlier this month to sell its ethanol business -- would take some time as it would have to obtain new feedstock supply contracts and be re-certified under a different company name, according to sources.
