Spot ethanol prices in northwest Europe firmed to a six-month high at the start of February after several months of remaining largely steady.
The minimum 64pc greenhouse gas (GHG) savings ethanol spot price reached €700/m³ on 4 February, its highest since 2 August 2024.
Despite this, participants are reporting ample supply in the region, sufficient to meet current demand.
The gains are largely attributed to a closed arbitrage with the US, higher production costs and ongoing uncertainty surrounding potential US tariffs.
Some market participants believe the price rise in the ARA region is partially driven by higher ethanol prices in the US, which have been supported by rising corn prices. These participants said European prices may have tracked US price gains given the closed arbitrage with the country, with expectations that the arbitrage between the regions will reopen as a result of higher ethanol prices in ARA.
Looking ahead, some market participants predict that ethanol imports will be reduced in the second quarter, which has caused the ethanol forward curve to shift into contango, with prices peaking at €711/m³ for the second quarter on 5 February.
Trump tariffs turmoil
Participants said prices are also being supported by uncertainty surrounding US president Donald Trump's plans to impose tariffs on imports from the EU. The European Commission said this week it will respond "firmly" should Trump "unfairly or arbitrarily" impose tariffs on EU goods. Trump made a similar complaint about the UK, but said he thinks "that one can be worked out".
Retaliatory tariffs from the EU could affect ethanol flows, as the EU is a net importer of fuel ethanol. It imported almost 69,000t of undenatured ethanol — usually used for road fuel blending in most EU member states — from the US in January-November 2024, according to provisional EU customs data. The UK imported almost 600,000t of ethanol during the same period. The UK can leverage favourable arbitrage opportunities to import ethanol from the US and redirect it to the EU.
Producers face higher costs
Argus calculations show ethanol production margins for corn and wheat at €168.69/m³ and at €146.71/m³ on 5 February, down from €223.56/m³ and €205.33/m³ a year ago.
Variable costs of yeasts, enzymes, chemicals and denaturants are not included in these calculations. Market participants said producers continue to adjust to a poor 2024-25 harvest season in Eastern Europe, caused by unfavourable weather conditions in Ukraine and France. Higher feedstock costs have contributed to higher ethanol prices, although the production margins are still tighter than last year.
In Ukraine, Europe's largest wheat exporter excluding Russia, Argus forecasts wheat production will drop to 22.3mn t during 2024-25, down from a five-year average of 24.7mn t. Corn supply from the country for 2024-25 is projected to fall to 22.9mn t, down from 31.5mn t in the previous season, according to Argus data.
France — Europe's largest producer of ethanol — has cut its wheat production outlook for 2024-25 because of wet weather. Rainfall in other parts of Europe has affected corn toxin levels, potentially leading to poorer quality ethanol. This is likely to weigh on ethanol output in 2025 as it will strain feedstock supplies, push production costs up and squeeze margins for producers.
More recently, European market participants said a late-winter cold snap may affect winter crops in Ukraine, and if so, strain feedstock supplies and push ethanol production costs up further.
It comes as markets are still waiting for an update on level 2 in the nomenclature of territorial units for statistics GHG emission values, the so called Nuts 2 values.
Biofuel producer Archer Daniels Midland expects ethanol profit margins to narrow this year, after posting wider margins in the fourth quarter.
The company expects ethanol margins to drop to break-even in the first quarter on higher industry run rates, even as robust demand for exports from the US supports improved volumes, it said.
ADM is one of the largest exporters of ethanol to Europe, according to those in the market.
