Poland's E10 fuel standard to draw ethanol from ARA

Poland's offer of E10 gasoline blend to motorists since the start of the year has boosted the demand outlook for ethanol in Europe and raises pressure on supply, with barrels likely to start flowing east from Northwest Europe.

The new fuel blend was expected to add substantial additional consumption in Europe this year, having already lifted demand through the first quarter, according to traders.

Platts, part of S&P Global Commodity Insights, assessed T2 ethanol at Eur680/cu m ($744/cu m) FOB Rotterdam on March 13, a year-to-date high amid good demand and thin T1 imports in the first quarter.

ARA stocks directed east

Eastern European production was being diverted to Poland rather than to West and Central Europe, sources said, due to higher demand which has necessitated increased stock draw from the Amsterdam-Rotterdam-Antwerp hub to meet supply shortfalls.

"We see the slots of trains in ARA terminals are very busy," one trader said. "It means that they are moving this product out, way more than what it was last year."

A second source said they understood Germany and Poland to be the primary destinations for material leaving Northwest Europe.

Logistics for ethanol transportation from ARA to inland Europe are almost entirely dependent on rail networks, though market participants have noted that poor infrastructure makes west-to-east flows a pain point.

Renewed rail strikes announced earlier in the week by German train drivers' union GDL will further disrupt ethanol logistics within the country, as well as deliveries of all other oil products.

A third source said the ARA market could be depended on increasingly to supply Poland's demand looking forward, despite infrastructure pitfalls.

"Poland will not have much interest in high savings. Material from Hungary and Germany has high savings, so I guess that ARA product would be the cheapest for them to buy," a Germany-based trader said.

Thin T1 to tighten NWE stocks

Traders in Europe have been observing the arbitrage with the US, which was reported to have opened for the first time since November in the past two weeks.

However, scarcity of EN specification and ISCC-certified ethanol product in the US has limited T1 offers from exporters to Europe, fueling some sentiment of tightness in Q2 with lack of resupply in April and May.

Platts assessed the Chicago ethanol benchmark at a four-year low $1.38/gallon on Feb. 27, which created arbitrage opportunities for European buyers. US prices have since risen 20% as of March 13 amid spring plant maintenance.

While T2 ethanol was still available and some small cargoes were said to have been booked from the US, sources said inventory levels in Northwest Europe have started to come off due to the current supply and demand dynamics.

"[Rotterdam] stocks are less than normal at the moment. Jetties are quiet and not much product is coming in," a source in the ARA market said.