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Asian fuel ethanol rebounds to 10-month high on stronger US futures

Singapore — Asian fuel ethanol rebounded to a 10-month high of $514/cu m CIF Philippines Friday, amid firmer US futures and strong all-in premiums at the US Gulf Coast.

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The marker was last assessed higher at $518.33/cu m on April 25, 2017, S&P Global Platts data showed, and had also bounced back from $465.67/cu m on February 7, where it saw the steepest day-on-day fall in over 38 months of $32.33/cu m (6.49%).

"Some sellers purchased ethanol [from the US] in large quantities back in early January when the market was low, and now they can discount the replacement in order to make sales," a trader said.

The CIF Philippines fuel ethanol marker though, has since converged with the replacement cost, Platts data showed.

Front-month Chicago Platts ethanol futures rose 4.99% from February 7 to $1.4725/gal ($389/cu m) amid strong exports to China and Brazil with the arbitrage window open from the US to Asia after US ethanol fell to 12-year lows earlier this year while prices soared in Brazil.

"We see a potential for anhydrous [ethanol] exports from the US to Brazil of 250,000 cu m in February and further 200,000 cu m in March," said a US-based trader.

Meanwhile, China's ethanol imports surged to a 13-month high of 120,702 cu m in January, from 33 cu m in December, data from the country's General Administration of Customs data showed.

Out of total denatured ethanol imports of 91,287 cu m in January, 91,283 cu m came from the US, the data showed.

"China bought a lot [of fuel ethanol] in December and earlier this year when the price was around $550/mt ($434/cu m) but now the US prices are too high," a China-based trader said.

China is expected to import around 200,000 cu m of fuel ethanol from the US this year, up from 39 cu m last year, with most imports arriving in the first quarter, market sources said.

The country's ethanol imports in 2017 had been severely impacted by a 30% import duty on denatured ethanol that was imposed in January 2017.

However, the arbitrage window to export fuel ethanol to China is narrowing, with offers of US fuel ethanol having risen to $600/mt ($473/cu m) CIF main ports China, while domestic prices in China for anhydrous ethanol were at Yuan 5,800-5,900/mt ($720-$733/cu m).

The CIF Philippines fuel ethanol marker is also buoyed by higher all-in premiums in the US Gulf Coast, with PNS grade rising 4 cents/gal day on day to 22 cents/gal for March loading, April loading by 5 cents/gal to 22 cents/gal, while May loading rose 4 cents/gal to 21 cents/gal.

"The PNS spec premium has increased due to tight supply, with strong demand from China and Brazil," a trader said.

Brazil and China both import ethanol with low water specification that is similar to the PNS specification. The PNS specification has a maximum water content of 0.5% by mass, whereas the more commonly traded ASTM grade in the US has a maximum water content of 1% by volume.

--Srijan Kanoi,
--Edited by Irene Tang,