A trade for spot T1 ethanol reported in the Northwest European market early Thursday has lifted prices for imported ethanol to a new high, according to Platts data.
T1 is ethanol that incurs a flat rate duty of either Eur102 ($137.75) or Eur192 per cubic meter sold into the European Union, depending on the country of origin.
The 1,000 metric tons T1 parcel — the first one known to have traded in the NWE cash market this year — was sold by London-based RWE to Sweden's SEKAB, for delivery between February 20 and March 5 on a FOB Rotterdam basis.
RWE confirmed the deal at $725/cubic meter, setting a new high for imported ethanol since Platts began assessing T1 on July 1, 2008. SEKAB was not available to comment.
According to Platts data, the previous highest level reached by T1 ethanol was on February 4, 2010, when it was assessed at market close at $716.50/cubic meter.
Activity in the T1 market has been very thin so far this year as large amounts of E90 arriving from the US hit liquidity for imported ethanol, sources told Platts.
E90 is a mixture of 10% gasoline and 90% ethanol which can be used as a surrogate by refiners in the gasoline blending process.
The influx of E90 is beneficial to end consumers as the blend trades at a cheaper price compared to ethanol and incurs a significantly lower import duty of 6.5%.
While trading in T1 in NWE has ground to a halt this year, prices for US ethanol have risen sharply following gains in corn prices on the Chicago Board of Trade. Corn is the main feedstock for production of ethanol in the US.
Front-month CBOT corn futures surged to $6.97/bushel Wednesday from a close of $6.20/bushel on January 3. The sharp rise came after the US Department of Agriculture predicted corn stocks in 2010-11 to hit their lowest level in the past 15 years.
Higher corn futures were reflected on firmer spot US ethanol prices, with New York Harbor barges climbing to $2.53/gallon Thursday from $2.38/gallon on January 7, according to Platts.
If T1 was be to be imported into the EU based on current US ethanol prices, a 1,000 cubic meter barge would equate to a final price of around $740-760/cubic meter, depending on the logistics.
A source at RWE told Platts that while the trade was done below replacement costs for T1, the Thursday deal would give the market fresh direction for T1 prices.
On Thursday, Platts assessed T1 ethanol on a FOB Rotterdam delivery basis at $709/cubic meter.
Other sources pointed out that E90 has severely depressed demand for T1, therefore it should be trading significantly below replacement costs.
