European T2 ethanol hits 21-month high on reduced ARA output, logistics

European T2 ethanol surged Eur22 on the day and Eur125.50 since the start of the month to a 21-month high at Eur622.25/cu m FOB Rotterdam Tuesday, on strong buying interest against tight supply in the Amsterdam-Rotterdam-Antwerp hub.

With the two UK plants Vivergo and Ensus, which had been key suppliers to ARA, being offline, product availability has been directly impacted. This has been further compounded by potential technical issues with a third plant and possibly reduced run rates by some other plants in the region during what was, until recently, a poor margin period.
   

To make matters worse, extremely low Rhine water levels over the last couple of months have made it increasingly difficult, if not impossible, to move the product across Europe. The logistical issue is limited not only to barge transport on the Rhine, but also to truck and train availability which are running at full capacity.

Recent measurements and forecasts point to improvements to the Rhine levels, though the situation will take some time to normalize. As a result, the only solution in the near term appears to be offered by imports, with some limited Latin American volumes expected this month, and some further cargoes, including US product, due for January.

Paper market values have been slow to react to the rally, remaining at considerably lower levels. December paper is still pricing below Eur600/cu m, pointing to a steep backwardation on the prompt, and also versus January, which is pricing at around Eur525/cu m.

Margins are therefore still not looking overly promising on a forward basis, even though on the prompt they appear to have recovered considerably, up by around Eur60 and Eur70 on the week against wheat and corn respectively. Nevertheless, with a theoretical crush spread estimation of around Eur77/mt against EU milling wheat and Eur155/mt against EU corn, these still represent the highest values in over 14 and 16 months respectively.