A plan by US senators to end ethanol subsidies on July 31 could prove bullish for the European market, trading sources said Wednesday.
"It should be pretty supportive, the EU needs the [US ethanol] supply," one source said.
The Volumetric Ethanol Excise Tax Credit (VEETC) and the corresponding tariff are due to end on December 31.
But a bipartisan group of three senators agreed on July 7 to repeal the 45-cent/gallon ethanol blender's credit and the 54-cent tariff on imported ethanol at the end of this month.
Senator Dianne Feinstein, Democrat-California, along with Senator Amy Klobuchar, Democrat-Minnesota, and John Thune, Republican-South Dakota, said they hoped their bill would be included as part of deficit reduction package that would accompany a deal to lift the nation's debt limit.
Those talks, between the administration and Congress, are still ongoing.
If the plan materializes, European imports of US ethanol blends benefiting from the 45-cent/gallon credit would face a jump in prices.
This would in turn put upward pressure on locally produced ethanol, sources said.
"We have no issue with the credit as such. The problem is that it can be used for those blends that go abroad [and to Europe]. That should not happen," said Robert Vierhout of ePure, a European ethanol trade association.
The association had previously warned of possible legal action to stop US exports of subsidized product. EUROPEAN IMPORTS OF US PRODUCT
Europe's ethanol market is structurally short and needs to import about 100,000 cubic meters/month of ethanol.
Most of this requirement is currently met by imports of E90, a mix of 90% ethanol and 10% gasoline that profits from US subsidies and lower EU import duties compared with pure ethanol.
Industry experts say the influx of E90 into Europe has been posing strong competition to locally produced biofuels as it trades more cheaply than European ethanol.
While benchmark ethanol barges were assessed by Platts at Eur627/cubic meter FOB Rotterdam Wednesday, trading sources pegged duty-paid E90 barges at Eur560/cu m FOB Rotterdam Thursday.
If the US 45-cent/gallon tax break goes away, E90 barges could rise to Eur645/cu m FOB Rotterdam, therefore losing competitiveness with European ethanol, trading sources said.
"That would give a boost to European ethanol prices almost immediately," one trader said.
"I think all the players who are long in Europe will hold product in tank until a decision is announced," another trader claim. "Who would sell now when there are chances the blender's credit will go away very soon?" A possible repeal of US ethanol subsidies also raised concerns over the shelf-life of E90 imports to Europe.
Ethanol traders said companies would most likely return to imports of pure ethanol grades and retain the option of blending it down to E90 to benefit from lower imports duties.
"It's better to bring pure ethanol and then decide whether you want to sell it as denatured product, undenatured or E90," one trader said.
