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European T2 ethanol at 10-month low on increased supply expectations

London — The European T2 ethanol price closed September on a 10-month low at Eur515.50/cu m ($605.20/cu m), S&P Global Platts data showed, due to increased supply expectations for October.

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Bearish sentiment has been manifested as a steep backwardation in the ethanol forward curve with October pricing at a Eur22/cu m spread to November on Friday.

This resulted in pushing buyers out of the market in the last week of September, as there was an incentive to wait to benefit from lower pricing expected in October.

Falling T2 prices, coupled with rises in wheat prices, have also put pressure on margins. The theoretical EU milling wheat crush spread was calculated at Eur65.28/mt Friday, also a 10-month low, as it fell Eur17.90 week on week.



Similarly, the theoretical EU corn crush spread dropped Eur15.88/mt on the week to Eur94.98/mt, a near four-month low.

The UK feed wheat crush spread was estimated at Eur80.15/mt, Eur17.24/mt lower week on week to a five-month low.

Market participants have been nervous for some time about about fundamentals in October as it marks the start of the 2017/18 marketing season for EU sugar producers as well as the official end of the European sugar production and export quota regime.

With increased beet acreage planted and mostly good weather conditions leading to a bumper crop this season, market participants expected increased beet-based ethanol production at least until the end of the year, even if producers favored sugar production overall. However, the sugar-ethanol parity will come more into play in the new year, after the end of the harvest.

The first beet-based ethanol deliveries have started to reach the market and, barring logistical issues causing localized shortages, sources said the European market was generally well supplied.

Supply levels in the Rotterdam market, in particular, have been further supported by incoming volumes from Spain.

With the supply side remaining comfortable, market participants were waiting to see whether the new month will see some buyers return to the market.

--Chrysa Glystra, chrysa.glystra@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com