The potential for arbitrage opportunities from Brazil to the EU was now acting as a cap on T2 ethanol prices in Europe, a source said.
After a brief opening of the arbitrage to the EU from the US early this month, T2 ethanol prices fell nearly 10% to Eur548.25/cu m ($594.85/cu m)Tuesday from a high of Eur604.50/cu m on January 13.
As US ethanol prices recovered, the arbitrage window closed.
Despite US ethanol currently being the most competitively priced in the world, it is now Brazil that is acting as a cap on EU ethanol prices, a trader said, adding that although more exports were leaving the US for China, India and the Persian Gulf than the EU presently, that would "probably not" offer much price support for EU prices "because the cap on prices is not the US arb but Brazil".
The US remained the most competitive netback at $483.25/cu m CIF NWE (Eur445.39/cu m) Tuesday, up $2.75/cu m on the day.
Brazil's netback stepped up slightly to $633.79/cu m CIF NWE from $630.79/cu m Monday. Despite this increase, trader saw Brazilian levels moving more in line with the T2 FOB Rotterdam assessment.
"Product delivered to the EU from Brazil from March onwards works over the US because the US has to pay a higher tax. The problem is the availability of the product," a source said.
The Platts T1 ethanol CIF NWE cargo barge assessment represents the lowest calculated net-forward value for FOB Santos and FOB Chicago Argo ethanol basis 4:30 pm London time.
A second trader said Brazil would not act as a cap on EU prices just yet. "For May on, it is true but it is still $40 away".
As the forward T2 paper curve continued to exhibit lower prices from downwards pressure, the trader said: "Front months were hit due to imports from the US. So, as a consequence, the entire curve goes down", adding that Brazilian imports were unlikely to act as a cap. "I do not think so. The forward curve in Brazil already shows the impact of the new crop and we are still far away. [But] FX could do its job as well, if the Real goes to 4.50 [per dollar] then we can have cheap FOB Brazilian ethanol competing to go to the EU".
