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Widening NWE ethanol-methanol spread buoys MTBE margins

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Widening NWE ethanol-methanol spread buoys MTBE margins

London — Production margins for MTBE in Northwest Europe are nearly three times higher than for ETBE, Platts data show.

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A tight ethanol market and a depressed methanol market in Europe have caused the spread between the two alcohols to hit a two year-high on Thursday, resulting in much higher feedstock costs for ETBE production than MTBE.

The European spot price of MTBE was assessed at $707/mt FOB ARA on Thursday, while ETBE was assessed at $754/mt FOB AR, putting ETBE at a $47/mt premium to MTBE.

Ethanol accounts for 43% of ETBE content, while methanol makes up 37% of MTBE's content. The remaining feedstock for the production of the two products is isobutylene, which is typically extracted from raffinate-1.

Raffinate-1's factor to naphtha CIF cargoes was last assessed at 1.24, equivalent to a price of $520/mt.

Northwest European spot prices for methanol and ethanol were assessed at $281.50/mt FOB Rotterdam and $844/mt FOB Rotterdam on Thursday, respectively.

This means that feedstock costs for MTBE amount to $431/mt on a cash margin basis, resulting in a production margins of $275/mt. At the same time, ETBE feedstock costs amount to $659/mt, resulting in a cash production margin of $94/mt.

T2 ethanol prices have been supported for much of the summer as limited supplies and seasonal demand have held prices in the high Eur500/cu m levels, or around $800/mt.

Limited imports into Europe compared with previous years and the closure earlier in the year of the UK-based ethanol plant Ensus have served to reduce supplies in Rotterdam and across Europe generally.

One source familiar with the ethanol market said that demand was high, especially on the spot market which was not being met with an influx of sellers, the source added.

Alongside demand on prompt dates, the first half of October was well bid with the majority of participants expecting price support to stretch into the new month.

The methanol spot market fell to an over four-year low of $281.50/mt FOB Rotterdam this week, or a 31% discount to the third-quarter contract price.

The methanol market continued to be dragged down by additional supply length at the Rotterdam hub as traders continued to offer discounts in the absence of buyer interest, while the drought in Central Europe is also increasing the amount of supply available because low water levels are restricting the capacity of barges on the Rhine, sources said.

In addition, optimism that a rebound in Asian methanol demand in September would emerge evaporated as Chinese economic woes and the consequent plunge in oil prices started to hit market fundamentals.

Despite the cost advantages MTBE production has over ETBE at the moment, some European producers with the ability to produce both products, have opted for ETBE in recent weeks.

ETBE demand in Europe has been robust since the summer, an ethers trader said. "However, I expect it will be less next month in line with the normal seasonal pattern." The trader added the gasoline grades that use MTBE are exported to a greater extent than ETBE blended gasoline.

--Thordur Gunnarsson,
--Caroline Knight,
--Miguel Cambeiro,
--Edited by Jonathan Dart,