Tumbling European fuel ethanol prices over October have increased the attractiveness of the product to industrial and beverage buyers, which could mean demand for fuel-grade product being supported in a time of seasonally weak demand and high supply.
Sources reported increased inquiries by the non-fuel sector, as T2 ethanol prices plunged to over 14-month lows in the Eur440-Eur450/cu m range last month, as increased beet-based production and some imported volumes weighed on the T2 (duty paid) market.
Although fuel ethanol is not suitable for all industrial uses, high- quality product can often be sold directly to the traditional sector without rectification.
This offers a much needed buffer for European ethanol producers, whose margins have evaporated in the last month to below Eur10 from over Eur100/cu m for most of 2017.
In addition, some producers have rectification capacity and should fuel ethanol prices remain low, they could decide to switch some of their production in that direction.
T2 prices have recovered somewhat since the lowest point in October, last assessed at Eur456.50/cu m Thursday, but there appears little in terms of fundamentals so far to support any substantial increase.
Industrial prices have also suffered recently as the bearishness in fuel ethanol market has spilled over into the industrial market, sources say, with prices reported approximately Eur40/cu m lower than a few weeks ago for REN grade ethanol, a low grade of industrial product.
Apart from following the fuel trend, sources also said that some imported industrial volumes have added to the bearish trend for REN, but prices remain at a high premium to fuel ethanol, even taking into account the cost of rectification.
However, as industrial production capacity is limited, the effect is more likely to be channeled through higher demand for high-quality fuel ethanol, rather than increased rectification rates.
