Outlook 2019: European Fuel Ethanol Market to Focus on Supply Side

by Sophie Byron and Chrysa Glystra (S&P Global Platts) The dawn of 2019 will find European fuel ethanol trying to rebalance supply, while awaiting key developments with Brexit and US antidumping duties.

Logistics have also been a headache not only for biofuels but also the broader fuel and petrochemical markets. Water levels on the Rhine fell to as low as 30 centimeters in November, hindering barge transport of product along the river but also on land as demand for rail and truck surged as a result. Rainfall at the start of December allowed water levels to rise above the 150 cm threshold, above which barges can be comfortably loaded, also allowing barge freight rates to fall from exceptionally high levels. In January, market participants will be aiming to clear the backlog of barge shipments and will be hoping for the logistics situation to normalize should water levels hold up.

Developments with antidumping duties against US ethanol will also be key. Although the arbitrage with the US opened towards the end of 2018 even with antidumping duties in place, this was still by a small margin and fewer players would have the risk appetite to bring cargo into Europe, compared to a no antidumping scenario. Currently the duty is set to be in place up until May, although in theory a decision could be made before the official expiry of this latest extension to the investigation. The shape that Brexit ends up taking in March will also be critical for the UK producers' restart prospects but will also have a knock-on effect on the Continent, should the UK find itself with no import or antidumping duties against US product. At a time when the US market length is putting huge pressure on prices and margins for US producers, they will be keen to find destinations for some of their excess supply.

The demand side for Europe has been steadily strong throughout 2018 and some increased mandates in the New Year will likely continue to support the trend, alongside stronger gasoline consumption in some countries. Consumption in France, the second largest ethanol market in Europe, will likely continue to rise on growing E10 and gasoline markets, despite an unchanged mandate. For 2019, S&P Global Analytics is forecasting French ethanol demand of 1.11 billion liters, up 0.91% from 2018. Moreover, Spain and Italy are both raising their mandates to 7% and 9% on an energy basis from 6% and 7.5%, respectively.