European T2 ethanol has fallen Eur24 since the start of August to an 18-week low at Eur538/cu m FOB Rotterdam Tuesday on lower feedstock costs and the prospect of greater supply.
Feedstock prices have also been falling, with Euronext milling wheat in particular dropping Eur14.50 over the course of August to Eur151.75/mt, a near-16-month low.
This is a result of the good progress in the wheat harvest, with higher yields and increased output reported across several key wheat producing regions in Europe.
UK milling wheat is also at an over-10-month low at Eur149.78/mt, down Eur11.43 since the start of August.
This has allowed margins to remain supported, with the theoretical EU milling wheat crush spread calculated at Eur128.28/mt. The equivalent on UK feed wheat is estimated at Eur133.59/mt.
Lower feedstocks, although an underlying factor, are not however the main driver of falling ethanol prices.
"For grain plants, the change in harvest doesn't really make a difference, only maybe if French wheat quality is better than last year -- the sugar market has a much bigger impact on our business," a source said.
The expected return of some ethanol capacity to the market with the new sugar crop, and potentially some additional volumes coming out of Spain, have led to bearish expectations for the fourth quarter. As a result, this has dragged values down on the prompt, even though there has not been a significant change in August fundamentals.
However, spot availability in the Amsterdam-Rotterdam-Antwerp region appears ample despite the lack of imports from overseas or incoming trains from Eastern Europe, against waning buying interest as summer demand tails off.
On the other hand, the Eastern European ethanol market is experiencing considerable tightness due to an unplanned outage at Hungrana's ethanol facility in Hungary. Hungrana has so far declined to comment. This has boosted demand for regional producers, but the tightness has not spilled over into ARA.
"The market is ignoring a few shorts here and there as more product is expected next month," a source said.
