European ethanol prices near 3-month lows on demand destruction fears

London — T2 ethanol FOB Rotterdam prices have dropped 23% since hitting an all-time high on Sept. 16 as fears of demand destruction resurface in the face of renewed lockdown restrictions across Europe.

T2 ethanol FOB Rotterdam prices were assessed at Eur646/cu m on Oct. 20, down sharply from the all-time high of of Eur840/cu m assessed on Sept.16.

Prices are now close to lows not seen in three months, with market sources pointing to stricter lockdown measures across Europe as the key factor pushing prices lower.

Concerns over gasoline and in turn ethanol consumption in the fourth quarter of 2020 and first quarter of 2021 have gripped the market over recent weeks, with one source predicting the market would remain bearish until the second quarter of 2021 at the very earliest.

Major European cities have introduced more stringent measure to tackle the coronavirus, which is starting to reflect in recent road traffic congestion data.

Road traffic congestion in Europe's biggest five capital cities in the week to Oct.18 fell to an average of 17% below year-earlier levels, the lowest since the first week of September, according to data from TomTom.

Supply squeeze easing

The arrival of an estimated 30,000-40,000 cu m of denatured ethanol from Central America, the US and Brazil at the start of October and expectations of an additional 20,000 cu m of imports arriving before November have also helped an already "overheated" market, market sources said.

"We are seeing more ethanol imports recently, but prices have been too high for too long," an ETBE producer said. "At least we are not deep in the red anymore, but we still need levels to drop to make profits."

ETBE is used as an oxygenate gasoline additive in the production of gasoline from crude oil, with ethanol its feedstock.

"Ethanol was three times the price of gasoline price for months," the ETBE producer said. "So refineries and blenders have been minimizing ethanol blending, and ETBE producers minimized ETBE production, so its both supply and demand affecting ethanol prices."

T2 Ethanol FOB Rotterdam prices had surged since the height of global lockdowns in late March -- it hit a low of Eur350/cu m on March 23.

Recent tenders in several European countries have been indicating healthy ethanol demand in 2021, with most market sources not envisaging a similar complete lockdown in 2021 and see ethanol consumption in Europe growing.

"I do not see a 50% drop in ethanol consumption over any of the quarters in 2021, as happened in March-April 2020," an ethanol producer said. "Although we have scenario-based models for it, I do not see it happening and it is the worst-case scenario."