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

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

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

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

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

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

Maintenance season, typically spanning March, April and May couldpossibly offer some relief to stock levels, while imports should slow downafter May. Seasonal increases in demand also usually kick in by Q2, but somemarket participants are skeptical as biodiesel blending economics are muchbetter.

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

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

EU corn prices, in particular, are at a seven-month high with Euronextfutures last closing at Eur165.25/cu m at 16:30 London time Wednesday, sendingthe 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 thetheoretical 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