The opportunity to take advantage of the contango structure in the T2 ethanol market by storing is unlikely to last long, according to sources.
T2 ethanol moved to a discount of Eur17.25/cu m versus the front-month paper contract Tuesday, down from Eur17/cu m Monday. The physical contract has been at a discount to the front-month paper contract since February 18.
The structure on the physical market has encouraged sources to store product, to sell at a later date at higher prices, but storage has been limited over the past month, sources said.
"With the contango, it just doesn't make that much sense to sell on the prompt," a trader said.
Another trader said more storage was likely to become available in May, and "as soon as we see more storage available, carry becomes more appealing so [it will be] good to see the demand reacts."
Following T2 ethanol's first day-on-day fall in eight sessions, down Eur6.25/cu m at Eur477.75/cu m, a source said: "The spread from physical to May paper is huge, a Eur20/cu m spread pays storage and all costs, giving a good carry margin [but] it shouldn't last long."
"Physical and paper need to converge soon," the source said.
