London (Platts)--4Mar2011/905 am EST/1405 GMT

Spot T1 ethanol in Northwest Europe hit a new historic high Thursday on a higher deal reported for April lifting. The product was assessed by Platts at $736/mt at market close, the highest level since records began in July 2008.

T1 is ethanol that incurs a Eur102/cubic meter ($142/cu m) or Eur192/cu m duty when sold into the European Union, depending on the country. At present, the United States is by far the biggest supplier of imported ethanol to the bloc.

Prices surged Thursday as VDS confirmed selling to BP 1,000 metric tons of T1 ethanol for full April delivery at $730/cu m. Despite the lack of bids and offers for T1 in March, paper indications at $735-755/cu m suggested the front of the market was stronger.

T1 prices have rallied 8.75% since the start of the year, following sharp increases in corn prices on the Chicago Board of Trade. Corn is the main feedstock used for the production of ethanol in the US and it has a strong correlation with ethanol values there.

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CBOT front-month corn futures closed Thursday at $7.29/bushel, up $1.09/bushel or 17.5% from January 3 after the US Department of Agriculture slashed its 2010-11 forecast for national stocks to the lowest level in 15 years.

Thursday's $730/cu m deal was considered "very low" by trading sources, who pegged value to spot T1 at around $740-750/cu m.

"T1 paper for Q2 traded at $750/cu m this week, not to mention the $740/cu m bid for physical product [for March] which was not hit [Wednesday]," one trader said.

Another source said that based on parity with current US ethanol values, T1 should be trading at around $780/cu m in Europe.

"The problem is that T1 is a very thin market now," one trader said, alluding to competition from E90. "The E90 market is oversupplied, with most players already covered for March and looking at April now, so there's no real demand for T1," he said.

E90 is a blend of 10% gasoline and 90% ethanol which can be used as a surrogate to T1 ethanol in the gasoline blending process. At present, E90 trades to a discount of around $50/cu m to T1 ethanol.

"So you still have people with [T1] product, people that can do stuff, but everyone is looking at E90," the same traded argued.

Amid thin activity in 2011, industry participants were reluctant to express any outlook for T1 prices, arguing that when liquidity is low "a single trade can define the whole market."

"In 2011, I've have traded only 2,000 metric tons of T1," one trader said Thursday. "That's nothing, absolutely nothing."

"While there's no demand, I don't think many companies have product to offer either," another source pointed out, noting that short demand and tight supply may help sustain prices.

The view expressed in the industry is that T1 will only be traded in the spot market to cover active supply contracts. "Some people still have contracts, I have contracts. So this market won't disappear so soon," one trader said.

In 2010, T1 ethanol hit its highest level on February 4, when it was assessed at $716.50/cu m.

--Guilherme Kfouri, guilherme_kfouri@platts.com