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Argo ethanol reaches four-month high on growing demand

The benchmark Argo ethanol market Friday rose to its highest level sinceOctober as robust demand and a bullish US Energy Information Administrationreport supported prices.

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"Production is coming down, stocks have drawn, energy got very firm andgas demand was up," said one source. "It's a perfect storm I suppose. Exportsare going OK and people think they may continue, but there are doubters."

S&P Global Platts assessed Argo at $1.4780/gal Friday, up from$1.4775/gal Thursday and the highest level since October 2, when it was$1.4875/gal.

Robust export demand has bolstered values in the market as product seemstight despite relatively high stocks.

The US exported 656.3 million liters (173.3 million gallons) of ethanolin December, 77% higher than a year ago and up 61.7% month on month, accordingto recent US Department of Agriculture data. It was the highest monthly exporttotal on record.

Sources have said that exports in January were also strong withcontinuing demand into February.

Production rates have hovered above 1 million b/d for all but one weeksince early October, according to EIA data.

But the higher production has not translated into lower prices the pasttwo weeks as market participants search for product to stage for export andproduct to meet domestic commitments.

A weekly EIA report Wednesday was also bullish for the market but sawlittle reaction as many market participants did not return to the office untilThursday, after an industry event.

The data showed production fell 41,000 b/d in the week ended February 9and stocks dipped 604,000 barrels.

The stock figure put total inventories only 385,000 barrels above lastyear's level, the smallest year-on-year increase since last September. Thetightening stocks and increasing domestic demand with a climbing refiner andblender net ethanol input are likely to continue supporting the market.

--Josh Pedrick, joshua.pedrick@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com