Friday, July 2, 2010

Global Ethanol Trade Flows

Global Ethanol Trade Flows

Ethanol trade has started to slow down for many producing and consuming countries.  The table on the right titled “Global Ethanol Trade Flows” examines trade flows between various regions around the world comparing year to date April of 2010 versus year to date April of 2009.  The six key trade flows that have shown significant year over year changes are evaluated as follows:


Looking at the table on the right, according to the US Census Bureau, exports of ethanol from the US to Canada have almost doubled this year compared to the same time frame last year.  This is due to provincial ethanol blending mandates in Canada taking effect within the last year, as well as preparation for the national E5 mandate that is set to be implemented at the end of the year.  There is one new plant expansion scheduled in Canada by Suncor of 200 mln liters in Q1 2011.  With no other new capacity on the drawing board beyond the Suncor plant, this level of Canadian imports will continue into next year.

· Brazil =CBI  =USA

Brazil’s exports to the CBI nations are down 76% of what they were a year ago.  CBI nations enjoy duty-free access to the US market.  The CBI countries have essentially no indengious ethanol production and rely solely on the dehydration of Brazilian ethanol.  The dehydration arbitrage of Brazilian hydrous ethanol is closed and we expect the arbitrage to remain closed for the foreseeable future reducing this trade flow to zero.

· Brazil => USA

Due to feedstock prices in their respective countries, imports of ethanol into the US from Brazil have diminished during the last two years.  Brazil’s poor harvest last year and substantial growth in Brazil’s domestic ethanol demand by the burgeoning FFV fleet has maintained strong domestic prices reducing the incentive to export. The US import tariff of $0.54-per-gallon tariff is also a strong barrier to open trade.  Although corn prices are rising in the US at the moment and pushing ethanol with them, it is remains uneconomical to bring material in from Brazil, especially with the added tariff.

· Brazil =Asia/Pacific

Brazilian ethanol exports to Asia are somewhat lower this year compared to the same time last year.  This market represents a potential growth opportunity for Brazil.  Other than China, there are no substantial producers of ethanol in Asia, especially for export, and countries such as Japan and India have invested in sugar mills and ethanol technologies in Brazil, leading to a natural trade flow between Brazil and these countries.  South Korea is a major recipient of ethanol from Brazil, but much of this volume is for beverage-grade consumption since  South Korea does not have a fuel ethanol blending mandate.

· Brazil => EU

Exports of ethanol from Brazil to the EU have fallen by almost half of what they were last year during the same time period.  This has been due to abundant T2 ethanol supply in Europe, as well as a function of price; when adding the EU import ethanol tariff, it simply has been largely uneconomical to send undenatured EN spec ethanol from Brazil to the EU.    We expect ethanol demand to grow in Europe with increased blending penetration percentages kicking in the second half of the year.  With this increased demand, regional price spreads will widened at some point to draw in the necessary volume to cover demand.

· USA => EU

Exports of ethanol to the EU from the US have increased substantially.  This change in trade flow has been a function of price.  Ethanol prices in the US have been low relative to EU and Brazilian prices prompting the surge in exports.  Export volumes have receded recently with the narrowing of regional prices.  This week’s strengthening in corn prices due to changes supply fundamentals will keep US ethanol prices too high for further sustained exports to the EU.

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