US West Coast ethanol markets have spiked in recent days, widening their premium to the Chicago paper market as tightness in rail markets has left less product available, sources said Thursday.
"People stopped sending product out there because people were bringing boats in," said one source, referring to ethanol imports from Brazil arriving in California. "Nobody wanted to have product out there and staged because they'd get crushed."
The arbitrage to import ethanol from Brazil has been closed for most of the year. But recent weeks have seen imports starting to arrive in California. With a shipment easily accounting for 20,000 cu m, market participants did not want to take long positions ahead of the cargoes.
"People would rather buy hand to mouth and pay a premium than buy a unit train and have to handle 80-90 cars," said the source.
Another source said that the Pacific Northwest market has moved to a premium over Northern California, the inverse of the usual relationship between the two markets.
Northern California rail cars traded for $1.76/gal Thursday while Washington cars traded for $1.77/gal and Oregon for $1.78/gal.
"Some buyers were trying to be cute and purchased stuff in the spot market thinking they'd get a better deal but it's backfired," said the second source.
The West Coast markets typically hold around a 14-cent premium to the front-month Chicago ethanol swap. But current tightness has seen that climb as high as 25 cents, the second source said.
S&P Global Platts does not assess the Pacific Northwest market, but assessed Northern California rail cars with a 95.02 carbon intensity (CI) at $1.6675/gal Thursday.
California's Low Carbon Fuel Standard assigns CI scores to ethanol producers. The scores then affect the value of the molecule of ethanol being traded. Platts normalizes California trades, commonly 79.9 or sub-75 CI, to the 2017 gasoline standard of 95.02 for its assessments.
Platts assessed the front-month Chicago ethanol swap at $1.54/gal for a 12.75-cent premium for 95.02 CI California ethanol.
