A possible opening of the ethanol arbitrage from the US to China has US traders eying the trade flow for the first time this year, but no deals have yet to be reported.
"We have been hearing a bunch of rumors of Chinese interest maybe coming back to the market, so far we have viewed them as just that, rumors," said one US source. "But with this continued price drop it could make sense."
Sources in China said earlier Tuesday that the arbitrage from the US to China had opened.
US prices have been in a near free fall since mid-September as support in the market evaporated.
The benchmark Argo market was heard trading at $1.4250/gal Tuesday morning. S&P Global Platts assessed the Argo market at $1.5990/gal on September 18, just before it began its rapid descent.
High prices through August and mid-September hampered exports. But the recent slide has renewed interest from buyers abroad.
China levied a 30% tariff on ethanol imports at the beginning of 2017. But the price difference between the US and China might currently be wide enough to make some cargoes work, sources said Tuesday.
As domestic demand falls into the end of the year, exports are crucial for keeping prices supported. Brazil has also levied a tariff on ethanol imports of 20% on volumes above 150 million liters in a single quarter.
Brazil has taken 1.275 billion liters so far this year and took two-thirds of the quarterly quota in August alone, the month the tariff was levied.
With Brazil possibly taking lower volumes toward the end of the year, the return of China could prove a boon for the US market.
But US traders said prices might need to shift some more before cargoes can be booked.
"I don't think anything has been booked yet," said another source. Current price levels in the US are making exports attractive to some regions, but to overcome China's 30% tariff values might need to fall even lower.
"We were hearing that if ethanol got to the $1.30-$1.35/gal area, it might work," said the first source. "I guess it may not need to get that low."
