First Half of May Saw Rising Fuel Ethanol Prices
Introduction: In the first half of May, China’s fuel ethanol prices were mixed, with an uptrend in Northeast China and frequent price fluctuations in Shandong. The main factors affecting fuel ethanol prices in Northeast China did not change much. Under rising costs and low output, fuel ethanol producers maintained their intention to keep firm prices. The fuel ethanol price in Shandong was mainly affected by the supply fluctuation. In the second half of May, the price fluctuations of fuel ethanol in Northeast China are expected to be limited, and in Shandong, players need to pay attention to the output and arrivals of goods.
Supported by bullish factors, fuel ethanol prices in the first half of May increased.
The price of feedstock corn rallied, and the fuel ethanol suppliers’ inventory fell, supporting fuel ethanol producers’ reluctance to sell at low prices. In the first half of May, fuel ethanol producers mainly raised prices. As of May 15, the closing price of fuel ethanol in Northeast China was RMB 5,600-5,780/mt, up RMB 90/mt from April 30. The end consumption during the May Day holiday supported some post-holiday replenishment for refined oil, and prices of most related products of crude oil and refined oil rebounded from low levels, but the rigid demand fell after the holiday, and the economic efficiency of ethanol relative to other components declined, so downstream users were cautious about the purchase of feedstock. The spot supply fluctuations in the Shandong market caused the fuel ethanol price to be range-bound. As of May 15, the fuel ethanol price in Shandong closed at RMB 5,640-6,000/mt, up 15/mt from April 30. The high-end and the low-end price spread widened, with the low-end price dropping by RMB 20/mt and the high-end price rising by RMB 50/mt.
The fuel ethanol price followed the cost as the upstream price increased more.
Since May, the price of the ethanol industrial chain and related products has shown an upward trend. Fuel ethanol prices also went up under the cost pressure because corn prices increased more than fuel ethanol prices. From a horizontal perspective, the price of 95% and 99.9% ethanol in Northeast China rebounded from a low level more quickly, with a larger increase than fuel ethanol, so the price spread with fuel ethanol tended to a more reasonable level. In May, the cost pressure on fuel ethanol producers in Northeast China mounted. In terms of profit, as of May 15, the monthly average profit from fuel ethanol production in Northeast China was RMB -405.56/mt, down 36.69% from the average in April. In terms of demand, fuel ethanol producers mainly produced to deliver orders to state-owned refineries. Although the May Day holiday boosted end consumption in early May, confidence after the holiday was mediocre, and downstream buying was cautious. In addition, the prices of gasoline-related products fell, and MTBE prices saw a small increase, so the economic advantage of adding fuel ethanol declined. The growth in the supply of other sources in the market in May was less than expected. The restart of Shandong’s producers was postponed, but the output still rebounded. Therefore, the fuel ethanol market price fluctuated, affected by supply, but it was mainly range-bound. The arbitrage window for sales from Northeast China to Shandong outside state-owned refineries was difficult to open.
Fuel ethanol prices are expected to undergo slowed-down fluctuations in the second half of May.
Cost fluctuations may slow down as the corn production areas in Northeast China are in a stalemate between supply and demand. In terms of supply, the output of fuel ethanol in Northeast China has rebounded. Although the output of producers under production is not high, some producers that were shut down for maintenance in the early stage have gradually resumed. In terms of demand, market demand is expected to be relatively flat in the second half of May. The Dragon Boat Festival holiday may support some purchases, but the overall strength may be limited. In the middle of May, the state-owned refineries will bid, and the bidding transaction price will be wait-and-see. Northeast China’s producers intend to raise their offers, but the actual dealing price is still to be seen. There is a lack of arbitrage opportunities from Northeast China to Shandong for the time being. As a result, fuel ethanol market prices in Northeast China may stabilize. In Shandong, fuel ethanol market prices will likely be range-bound as suppliers may maintain firm prices without inventory pressure in the short term and the arrival cost will not fluctuate much. Players need to pay attention to supply changes.
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