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Oversupply, tight storage push T2 ethanol to 18-month low

London (Platts)--15 Mar 2018 1002 am EDT/1402 GMT


European T2 ethanol tumbled to a more-than-18-month low losing Eur6.25 on the day to Eur442.75/cu m FOB Rotterdam Wednesday, as excess supply and tightening storage capacity resulted in sharp falls in offer levels.

Weak fundamentals have been weighing on the market for some time, with the T2 price having lost Eur21.75 since the start of the month. Following a build-up of domestic stock levels after a strong sugar beet crop in a period of relatively weak demand, the addition of Central and South American imports tilted supply balances even further.

News of Vivergo planning to restart its UK plant, which has been on extended maintenance since mid-December, has also been a bearish factor for the market.

On Wednesday, however, values took a steeper downturn, with sources attributing this to some storage blockages. Although tanks in the Amsterdam-Rotterdam-Antwerp hub are not completely full and sources said that there are some small spaces available, loading delays for some of the incoming shipments appear to have caused some bottlenecks, as cargoes that should have arrived separately will now be arriving all at once.

With imports continuing to flow in at least until April, the outlook remains bearish for the short term.

Maintenance season, typically spanning March, April and May could possibly offer some relief to stock levels, while imports should slow down after May. Seasonal increases in demand also usually kick in by Q2, but some market participants are skeptical as biodiesel blending economics are much better.

Having said that, with margins at negative levels, some producers might decide to extend their maintenance and Vivergo might be discouraged from moving ahead with the restart.

Margins have been impacted not just by the weak price environment but also by expensive feedstock prices, with grain prices on the increase and likely to remain at strong levels.

EU corn prices, in particular, are at a seven-month high with Euronext futures last closing at Eur165.25/cu m at 16:30 London time Wednesday, sending the theoretical crush margin to an more-than-18-month low.

UK feed wheat is also at an five-month high at Eur161.26/mt, pushing the theoretical crush spread to a more-than-three-year low.

As a result, the pressure on European producers looks set to continue.

--Chrysa Glystra, chrysa.glystra@spglobal.com

--Edited by Maurice Geller, maurice.geller@spglobal.com




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