Weak sales of E10 ethanol-gasoline blend in Germany has started to raise fears of a poor driving season in one of Europe's biggest biofuel markets, sources said.
"All companies took positions on E10 [at the start of the year], but demand just never came," one German producer said.
"This shook the market a little bit and left oil companies confused whether consumption [of E10] would really pick up," he added.
Since the start of the year, the German government has permitted a rise in the maximum level of ethanol allowed in blended gasoline to 10% from 5% previously as part of its commitment to improve sustainability of road fuels.
But E10 has been met with strong resistance from German car owners, who have been shunning the new blend on fears it could damage vehicles' engines.
Last week, German ethanol producer Verbio AG reduced its guidance for financial year 2011 by almost a third due to "the sluggish implementation of E10."
Significantly lower-than-planned demand for E10 during the second quarter of the year led to an ethanol capacity utilization rate of around 50%, the company said.
Verbio now expects to generate EBITDA of between Eur25 million ($35.5 million) and Eur30 million in 2011. At the beginning of the financial year, the company had set an EBITDA target of between Eur35 million and Eur40 million.
High gasoline prices compared to last year have also been bearish for bio-additives such as ethanol, sources said.
"Last year prices were around Eur1,30/l or Eur1,40/l. Now you're paying 15 cents more, prices are definitely higher," one German-based trader said.
"But the holiday season still hasn't started [in Germany] and the economy is doing good, people certainly have money to spend," he added, noting that demand could improve.
Verbio held a positive outlook for the second half of 2011, assuming "full use of bioethanol production capacities and profitable margins in the third and fourth quarters," it said.
But one ethanol producer suggested companies were mostly covered as the inventories built at the start of the year--when the introduction of E10 was regarded as bullish--still needed to be discharged.
In April, logistical bottlenecks caused by sluggish E10 sales led oil majors such as Shell to halt the introduction of E10 at filling stations in northern and western Germany.
