Ethanol producers are watching the European Commission's decision on anti-dumping duties on Indonesian and Argentinian biodiesel imports into the EU closely as any reduction could make biodiesel more competitive against ethanol in Europe, market sources said.
Should the anti-dumping duties be scaled back on Thursday, when the EC decision is due, they would make FAME 0 biodiesel cheaper.
A cut in the duties would boost flows of soybean oil-based SME into Europe from Argentina and palm oil-based PME from Indonesia as they are able to produce biodiesel at competitive prices due to abundant feedstocks.
As biodiesel becomes cheaper, it becomes more competitive against ethanol in Europe, with the higher price being offset by the greater energy content in biodiesel. This would reduce demand of ethanol, causing lower prices along the curve.
The EU imposed anti-dumping duties on Indonesian and Argentinian biodiesel in November 2013, cutting imports from both countries. Anti-dumping duties imposed on individual Indonesian biodiesel producers range between 8.8% and 23.3%.
Participants in the ethanol market have said that they are watching the biodiesel developments closely because any reduction would act as an incentive for a switch away from ethanol to biodiesel, especially in countries that have a biofuels mandate, rather than separate ethanol and biodiesel mandates.
Biodiesel also typically offers greater greenhouse-gas savings than ethanol and so in countries where the mandate is set on a GHG savings basis, such as Germany, less biodiesel is needed to meet the mandate in comparison with ethanol.
As a result, the overall consumption of biofuels would be lower if only biodiesel is used, highlighting the combined impact of blending economics and mandates.
"If the [biodiesel] price comes down following anti-dumping duties, ethanol will be less competitive, some of the countries with non-specific mandates could move to biodiesel, causing lower ethanol prices," a source said.
There is already a backwardated structure in the European ethanol market, with market participants anticipating increased capacity online toward the end of the year, thus increased supply.
There is also the expectation that some sugar production is due to move to ethanol production toward the end of the year.
On Monday, Platts assessed T2 ethanol FOB Rotterdam at Eur563/cu m ($650.12/mt), whilst FAME 0 FOB ARA was assessed at $905.50/mt on the same day, reflecting a premium of $454/mt over front month ICE gasoil futures.
The FAME 0 market Monday was in a backwardation nearing $100/mt from the physical spot market to December paper, partly highlighting the increased supply, should anti-dumping duties be reduced, but also lower demand for FAME 0, as demand in Europe moves to RME in the winter months due to its better cold weather properties.
T2 ethanol is also backwardated along the curve, but to a lesser extent than the FAME 0 market, with almost Eur70/cu m between prompt physical and December paper.
