Concerns over potential resupply to the European ethanol market may kick open another rare arbitrage opportunity, with the US the most plausible supply location, trading sources said Wednesday.
The views came as European giant Abengoa was again in the news after revealing that a potential investor had dropped out of negotiations to take a substantial stake in the troubled producer.
Shares in the company, listed on the Madrid Bolsa, were temporarily suspended in the wake of the announcement.
"The news scared all the sellers," one trader said of the announcement about the operator of Europe's biggest single ethanol production facility.
"One has to see that they are not running at decent rates of production," a second trader said. "Prices will need to find a substitute re-supply, which will be from the US given Brazil is also short."
Although the arbitrage window between the US and Rotterdam was closed, according to sources, the low stocks in Europe and the uncertainty over supply meant traders were starting to look back across the Atlantic for potential volumes.
Despite prices in Europe hitting a three-year high of Eur682.50/cubic meter on November 19, the UK's second-largest production facility, Ensus, has also remained closed, according to sources, after owner Cropenergies halted output there in February, citing difficult market conditions.
"Prices will gravitate to US inflow parity near the mid-Eur600/cu m levels, by the time Ensus gets online it would be a month away, so the front solution remains USA," a source said.
Platts assessed T2 ethanol barges at Eur620.50/cu m FOB Rotterdam on Wednesday. US ethanol was last assessed at $1.6050/gal or $472/cu m ex-Houston Houston, with freight at around $50/cu m. While the economics suggest the opportunity is there to move ethanol from the US to Europe, finding supply that meets Europe's EN spec is a challenge.
Another source said that if Abengoa was unable to produce, and before Ensus started back, "we will have 2-3 months of really high prices," but added it would be "another story" should any further significant disruption to European supply occur.
