Stable market keeps price tags in check
By Staff -- Purchasing, 7/16/1998
It's another stable year for ethanol. Tags will stay at current to slightly lower levels through year-end despite an attempt to raise prices by ethanol suppliers. Supply is adequate, and no new capacity expansion is expected through the end of this year.Currently, contract prices average $2.00/gal. Some high-volume purchasers report tags as low as $1.70/gal. Spot prices and small-quantity prices run a steeper $2.40/gal-$2.60/gal. Buyers say that prices may dip further by the end of the third quarter due to slight oversupply.
Already, stable supply and ethanol's cost structure have enabled buyers to thwart a recently attempted hike of 10¢/gal issued July 1, says an East Coast PM. He suggests that suppliers may have raised tags to prevent further price erosion since chemical production slows during the summer, especially for solvents.
The economic downturn in Asia and steady or falling feedstock tags account for the recent stretch of stable ethanol tags. One Southern PM says that Asia historically buys more ethanol than it sells, and that reduced sales will hurt domestic producers if Asia's economy continues to weaken.
Flat or even slipping feedstocks continue to contribute to steady ethanol tags. Ethylene tags are still far below late-1995 prices. Buyers say they don't expect corn prices to push ethanol tags upward this year. In fact, the East Coast PM says that prices for fermented corn products have dropped significantly.
Purchasers report adequate supplies and expect no changes through year-end. No high-volume capacity expansions are on the table since Archer-Daniels-Midland recently increased industrial alcohol production. Any capacity that is coming onstream for ethanol is generated by fuel alcohol producers "upgrading facilities to provide higher-quality material," according to the East Coast PM. He expects the expansions to affect the ethanol market incrementally over the next 2-4 years.
In contrast to the near future, the long-term price and supply picture may be more complicated. Clean air initiatives could pressure some ethanol users, according to the East Coast PM. Restrictions on end-use applications, such as aerosols, could loosen ethanol availability further.
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