T2 ethanol dropped to a 15-week low Thursday of Eur551/cu m, down Eur13 on the week, on improved product availability and bearish Q4 expectations impacting sentiment on the prompt.
Values have gradually been declining over the last couple of months after having reached a peak in May at Eur610/cu m, when market tightness was most pronounced due to the maintenance season.
Since then, the ARA market has seen some imports arrive both on the fuel and the industrial front, easing the situation somewhat, while sustained good margins have provided an incentive for producers to maximize their capacity utilization.
With production ramping up after maintenance, ARA supply has improved considerably, and although imports have now slowed down, buyers are now finding it much easier to cover their needs.
In addition, feedstock prices have eased recently, with Euronext milling wheat currently at Eur163.50/mt, down from the highs of around Eur180/mt in July. Euronext corn has also softened to Eur166.75/mt from around Eur175/mt in July.
The easing supply tightness has meant that the market has moved towards a more balanced state and prices have adjusted downwards, trading in a range of Eur560-580/cu m for most of July.
Expectations of a longer market in Q4, however, seem to be having an increasing impact on prompt values, putting further pressure on August prices, despite the lack of any August-specific additional bearish factors.
Bearish expectations for Q4 are due to some additional ethanol volumes to reach the market as the new sugar crop progresses, while market participants also expect to see the former-Abengoa Salamanca plant ramping up its production following its trial restart in June.
Although the additional volumes are not necessarily expected to be huge, it is enough to tilt a balanced market to the long side and this expectation is reflected in the forward curve which prices Q4 at Eur493/cu m.
Such steep backwardation may not fully materialize, but as values are expected to converge, the pressure on the prompt should persist as the market is already heading in that direction.
The only caveat is some market talk of planned outages, which may see some temporary firming of values, but so far this has not been reflected in market movements.
