European fuel-grade ethanol prices have become less vulnerable to near-term declines as future prices are now high enough to encourage sellers to hold on to stock rather than selling it promptly, according to trading sources.
Wholesale European ethanol cargoes traded in Rotterdam, where spot prices are assessed, have slumped 9.3% since the 2014 peak hit March 20 to a close of Eur480/cu m ($660/cu m) FOB on Friday.
A cocktail of sluggish seasonal demand and weaker grain costs sent prices to a near four-year low of Eur442/cu m FOB on February 19 against a 2013 average of Eur606.28/cu m FOB, Platts data show.
The European ethanol market has been trading in contango since the end of November 2013. A market is in contango when prompt prices are lower than future ones, boosting the incentive for participants to buy and store product.
In Rotterdam, Europe's biggest fuel trading hub, the cost of storing, financing and insuring standard 1,000 mt (1,267 cu m) ethanol barges for the period of a month is estimated at Eur10/cu m.
But the difference between prompt physical prices and the front-month swap has been wider than Eur10/cu m for six straight sessions, according to Platts data.
This discount hit a 2014 high of Eur23/cu m on May 6, but narrowed to Eur13/cu m on Friday's close. It has so far averaged Eur7.60/cu m in 2014.
A wider discount benefits market participants with access to storage or finance at the lowest cost.
The European market has been plagued by oversupply since the end of 2013 due to higher domestic production rates and steady fuel sales, sources said.
