The European ethanol physical price curve moved into contango this week as persisting high inventory in April collided with views that May could bring improved demand, sources said this week.
A standard 1,000 mt fuel ethanol barge for delivery in April was understood to be trading at an average discount of Eur3-5/cubic meter ($3.90-6.50/cu m) to what buyers are willing to pay for cargoes loading in May, sources said.
In early European trading hours Friday, a 1,000 mt fuel ethanol barge was reportedly sold at Eur625/cu m FOB Rotterdam for next week's shipment, while bids for product delivering in May were heard at Eur628/cu m FOB Rotterdam, according to market sources.
In the meantime, non-deliverable May ethanol swaps were seen discussed at Eur628-632/cu m, trading sources said. European ethanol swaps settle on the average spot physical price published during the contract month.
A contango structure should typically not significantly exceed the costs involved in holding stocks of the product for forward delivery, also known as the cost of carry, as a wide gap could trigger an arbitrage.
The eurozone's slumping economies combined with a longer-than-usual winter period combined to keep a lid on gasoline consumption during the first months of 2013, sources said.
Gasoline uptake is crucial in determining how much ethanol is purchased by refiners and blenders as it typically constitutes around 5 to 10% of the final gasoline composition sold at the pump.
Expectations of a stronger gasoline market in May has lifted sentiment among ethanol buyers and sellers in Europe, who may need buy more additional volumes of the bio-additive once current stocks are cleared.
Ethanol production in Europe is currently capped due to the recent shutdown of major facilities in the Netherlands and in the UK amid weak margins.
The two plants, operated by Spain's Abengoa in Rotterdam and UK's Ensus in Wilton on Teesside, amount to over 850,000 cu m/year in production capacity, or around 15% of annual European demand for the biofuel.
Trimmed European capacity is unlikely to be substituted by significant import volumes in May as the European ethanol spot price is currently not high enough to attract shipments from either the US or Brazil, the largest world's exporters, sources said.
