T2 ethanol price at pre-coronavirus levels on strong demand, tight undenatured supply

New York — European T2 ethanol has risen to its highest price since before lockdowns imposed to contain COVID-19 saw prices nosedive, as a combination of factors resulted in a quicker than expected tightening of fundamentals.

While there was strong demand in the market, that was against a backdrop of fewer imports and domestic production that has been divided between fuel and disinfectant, sources said.

T2 ethanol rose Eur24.75/mt ($28/mt) on July 8 to Eur639.75/cu m FOB Rotterdam, which was its highest since February 27, S&P Platts Global data showed

Sources pointed to a differentiation between availability of denatured and undenatured ethanol, the latter being the specification reflected in the Platts benchmark assessment and more widely used for fuel purposes.

While some European countries accept denatured ethanol for fuel blending, most do not and it is typically used in the industrial sector. There is also an import duty differential of Eur90/cu m between the two, which will often determine attractiveness to import.

Market participants reported high volumes of denatured ethanol stored in the Rotterdam area, while most of the imports expected from origins such as Argentina, Brazil and Canada will also be denatured.

So, while this segment of the market is amply supplied, availability of undenatured ethanol is much tighter.

Higher prices over the past month will have likely incentivized most producers to ramp up their rates after the production cut-backs during April-May.

But sources said perhaps not everyone was back to full speed and a share of production was likely still supplying the disinfectant market.

While hand sanitizer demand is not seeing the frenzy of March and April, it was steadily absorbing product at a higher rate than before the outbreak of the coronavirus pandemic.

Fuel consumption itself also appeared to have shown a quicker recovery than expected. While official data releases typically have a couple of months lag, market participants said buyers were looking for additional product and producers were sold out for August.

"Bear in mind we had a bullish picture before COVID," a source said.

Indeed, 2020 had started on a very strong note as a result of higher blending mandates in most European countries.

As a result, many saw potential for that outlook to return, especially if strong fuel demand resumed alongside sustained disinfectant demand.