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Biodiesel Energy Ethanol Europe

Biofuels buck the trend of falling commodity prices

  • European ethanol appears to be one of the few commodities avoiding the sell off as tight supply is supporting a mandated market, particularly in the front months. Prices for spot delivery have remained almost totally constant for the month of July, having risen 20 €/cbm at the end of June. This has been excellent news for producers as the simple crush margin has risen almost 100 $/mt over the previous four weeks following the collapse of EU grain prices at the end of the heatwave. However, for blenders it has proved costly; the ethanol to gasoline spread has risen from around 50 $/mt to 170 $/mt in the same period, hitting profits at the pump even as the crude complex falls.

 

  • Further along the curve, however, Q4 values have trended downwards as participants weigh up the cost of grains for production in Q4 at a time when demand is traditionally slack. Fourth quarter gasoline demand is typically lower than third quarter, and a backwardated market is going to encourage sellers to start discounting to avoid holding the product month on month as values decrease.

 

  • Margins for biodiesel producers are behaving in a similar way, with prompt spreads to RSO increasing over the past month but Q4 staying steady around 50 $/mt. The decline in rapeseed oil and gasoil has pressured flat price biodiesel to the point where producers could start to come to the market to start purchasing in lieu of producing.

 

  • Data from Germany’s BAFA shows that biodiesel consumption in the country fell 1.5% in the first 5 months of this year, highlighting the change to a GHG based system is reducing volumes of the biofuel compared to last year’s mandate system.

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