Platts T2 ethanol fell to a three-month low Friday at Eur554/cu m, down Eur10.50/cu m week on week as bearish sentiment continued.
Expectations of increased supply and lower demand edged the market lower on the week as liquidity began to wane and July draws to a close.
"No one needs barrels like they did at the start of the month," a source said Friday.
Demand is lower than at the start of July, with many market participants covered for the winter months and with increased supply on the horizon. This supply is expected to come from the sugar producing side, with some producers expected to move to ethanol production from September, leading to increased supply.
Supply is also expected to come from increased capacity in the ethanol market, with some market participants highlighting the fact that the ethanol facility in Salamanca, Spain, which restarted on a trial basis in June, may be running by the final quarter of the year, adding to the bearish sentiment. "It's not a big plant though, but enough to scare some people," a source said.
There will also be more readily abundant feedstocks following harvests in Europe in August and September, likely leading to lower prices for feedstocks and hence more ethanol.
Production margins on the prompt remain wide though, even before the increased supply of feedstocks, because feedstocks are currently cheap in comparison; Euronext corn front-month futures hit a near 16-month low Thursday at Eur155/mt, before edging up to Eur156/mt on Friday.
With such wide margins, producers have the incentive to run at full capacity if they can, market participants said.
