Arrival of Brazil ethanol cargos to boost ARA inventories on prompt

Shipments of Brazilian ethanol have begun to arrive in Europe, according to market sources, as European prices have risen over the last six months following meager imports from the country since the fourth quarter of last year.

Despite talks around stock draws in the Amsterdam-Rotterdam-Antwerp hub earlier in the year, there are still sufficient levels of ethanol product, with arrivals of T1 since March, a source said.

"Lots of US material came over the last few months, but Brazil has been additional over the last month or so," a market participant said.

European ethanol prices have shown signs of easing with the arrival of cargoes. Platts, part of S&P Global Commodity Insights, assessed T2 ethanol FOB Rotterdam at Eur739.50/cu m on July 4, down 1.8% week on week. However, prices have been elevated since the start of the year, having climbed 24.2% since Jan. 2 in line with higher demand from Poland and a shortage of total imports through the first quarter.

"There was a big parcel last week again [to Rotterdam], namely Brazilian product from Argentina," a source said. "As [ARA] received quite a lot of product last week, stocks are higher again, though activity is lower than in 2023."

Exports of ethanol from Brazil to Europe started to pick up pace in the second quarter after a quiet first quarter, with April and May shipments amounting to 8.9 million liters and 10.3 million liters respectively, data from Comexstat showed. The volumes are a noticeable jump from just 110,800 liters and 48,024 liters exported to Europe in February and March, respectively.

Recent discussions indicated that the arbitrage with the US remains closed, while small volumes from Brazil were reported. "Some Brazilian material is still coming, but the arbitrage has not properly opened yet," the same market source said.

Europe is a net importer of ethanol, with annual consumption consistently exceeding production capacity in the bloc. In 2023, EU production amounted to 6.86 million cu m, against consumption of 8.749 million cu m, with almost a quarter of demand covered by imports, Commodity Insights data showed.

On the demand side, market participants continued to report that buying interest tended to be strong, tracked also by ETBE interest from Mediterranean countries, as the peak summer driving season commenced.

Brazilian hydrous demand to retain supply domestically

Ethanol traders at the main Brazilian companies operating abroad told Commodities Insights that arbitrage conditions for Europe had improved for a short period between the end of May and the beginning of June, resulting in a few deals being closed that are now being loaded for delivery overseas.

Those sources, however, do not expect momentum to carry through for the rest of 2024.

For now, local expectations are that abundant retail demand -- thanks to favorable pump economics for hydrous E100 ethanol consumption against gasoline across the country -- should keep Brazilian suppliers' attention attuned to the domestic market.

Meanwhile, ethanol prices in the Brazilian domestic market have recovered since the beginning of the year, paving the way for an improvement in producers' margins.

Based on reported deals and indications, Platts assessed hydrous E100 ethanol ex-mill Ribeirão Preto at Real 3,070/cu m on July 4, up from Real 2,330/cu m seen in the first trading session of the year on Jan. 2.

Predictions from sources are for even stronger spot prices over the next off-season because of the current demand levels. Better capitalized suppliers are likely to adopt a "carry" strategy to benefit from higher values after industrial units wrap up cane crushing in Center-South Brazil, traditionally in mid-November.