Spot Ethanol Prices Flat as Supply, Demand in Balance
Spot Ethanol Prices Flat as Supply, Demand in Balance
By: George Orwel
February 2009 DTN Refined Fuels
NEW YORK (DTN) — Spot ethanol prices rose slightly on Friday from the levels seen Thursday, but there wasn’t much change for the week as traders weighed lower corn prices against higher gasoline values.
In fact, in the ethanol swaps market, prices came off about 3cts, driven largely by the weaker corn market. But physical cargoes of ethanol for late January to early February delivery to Chicago traded at $1.57 and $1.59 gal, reflecting a session gain of 2cts and up 1.5cts for the week.
In the New York Harbor, physical cargoes traded 3cts higher for the session and 1.5cts higher for the week. Houston prices were discussed between $1.68 and $1.70 a gal, although no trade was reported. In the West Coast, most of the discussions on cargoes going to Las Vegas and a few to Phoenix, Ariz., with just a few to California.
The market for Renewable Identification Numbers, or RINs, was busy throughout the week, with 2008 RIN reporting deadline coming at the end of February. At least one deal was reportedly done for 2008 RINs at 10.9cts after a lot of talk in a 10.75cts to 11.25cts bid/ask range. RINs for 2009 were last seen at 12cts to 13.5cts. Earlier in the week, RINs were trading above 15cts.
Clayton McMartin, who runs RINSTAR, an exchange platform for RINs, said refiners have been especially active in the RIN market as blending economics have soured in recent weeks. But this week, the ethanol premium over gasoline has shrunk to 34cts, down from more than 40cts to 50cts last week. The ethanol premium narrowed by 15 percent because gasoline prices rose 18cts or 16 percent this week, according to trade data.
McMartin said blending economics aside, the current weak economic environment which has helped to push some financially-strapped production plants out of business has tightened supply at a time when ethanol demand, as mandated by the government, remains robust. But he added that if RIN prices continue to climb, then ethanol producers who have chosen to idle their plants will revive their plants.
“I can predict that those ethanol plants will be back up soon because the only legal way to raise RINs is to produce ethanol,” he said.
But that will depend on gasoline prices rising also. Already, gasoline prices have stabilized, and could start running up in the next couple of weeks as refinery runs fall due to planned turnarounds ahead of the summer gasoline season. A surge in gasoline demand will also boost ethanol demand, which will require production to also increase.
Ethanol supply remains adequate for now. In fact, while some plants have been idled or cut runs in recent months, there doesn’t appear to be a lack of supply yet.
Fresh government data show that U.S. ethanol output was 3 percent higher last November, as production plants increased runs despite a credit crisis that, after some operators suffered heavy losses earlier in the year on wrong way hedging bets amid extreme market volatility, led several ethanol companies to go bankrupt.
The data released Friday (1/30) by the Energy Information Administration also detailed higher demand for the month. The data showed November 2008 production at 20.054 million bbl or 668,000 bpd, up from 20.048 million bbl or 647,000 bpd for October. That represents a total output gain on the month of 21,000 bbl while the daily production rate increased by 6,000 bpd.
The domestic production plant run rate for November 2008 is, based on available data, estimated at 85.31 percent, up 2.68 percent from 82.63 percent of operable capacity for October.
Meanwhile, product supplied to the market, a proxy for ethanol demand, was calculated at 21.099 million bbl in November, up from 20.353 million bbl for October. That represents a daily demand increase of 24,065 bbl and a monthly increase of 746,000 bbl.
George Orwel: 347-461-9147, george.orwel@dtn.com
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