Ethanol in US Atlantic Coast market continues price climb

Ethanol in US Atlantic Coast market continues price climb

Houston (Platts)--25Oct2006

Ethanol prices in the US Atlantic Coast market Wednesday pushed to 71
cents/gal over spot conventional unleaded gasoline, a reaction to a train
derailment that exacerbated an already tight supply situation.

Since a train carrying 55,000 barrels of ethanol derailed October 20 in
Pennsylvania, end-users have scrambled to make up the still-delayed
deliveries.

New York Harbor ethanol buyers and sellers Wednesday were seen in the
$2.25-2.30/gal range, after finishing up 15 cents Monday at $2.15/gal, and
another 7 cents on Tuesday to $2.22/gal, according to Platts assessments.

Since the derailment, spot conventional gasoline in New York has been
largely unchanged, down 70 points Monday to $1.506/gal and Tuesday, up 2.6
cents to $1.532/gal, until boosted to $1.583/gal Wednesday by bullish Energy
Information Administration data.

With spot conventional unleaded rated 25 pts over the November NYMEX
RBOB, which was at $1.5680/gal at 2 pm EDT (1800 GMT), it puts the exact
spread of ethanol over spot conventional unleaded at 71 cents/gal.

On June 20 ethanol hit a record $5.75/gal in the USAC, a whopping
$3.81/gal over conventional unleaded, assessed at $1.9425/gal.

Ethanol receives a 51 cents/gal federal tax break at the retail level,
meaning that at 70 cents/gal over unleaded it is not economic to blend in
conventional gasoline. While RFG blenders in the USAC are for all practical
purposes stuck using 10% ethanol blends no matter what the cost, conventional
blenders however, can use more or less ethanol at their discretion. An over
50-cent/gal level versus finished product means they would use other
blendstocks, a bearish factor for ethanol.

The implication of all this is that ethanol buyers right now are short
enough to look for ethanol independent of its price relationship to finished
gasoline.

The other US markets have reacted to the New York problem; since the
derailment Chicago has shot up about 15 cents/gal to $2.08/gal. Even Houston
was up about 8 cents/gal to $2.08/gal.

If the tightness in the USAC continues, the extra ethanol supply would
have to come from the Midwest or from Brazil, market sources suggested. At
current prices, the Midwest would most likely be the most likely source.

At about 12 cents/gal freight, Midwest rail barrels could land in the
USAC about $2.20/gal. Brazil is assessed at about $1.75/gal, so, with 54
cents/gal import duty added to 14 cents/gal estimated freight, as well as ad
valorem and other charges, Brazil would be seemingly priced out of the market
landing about $2.45/gal.

--Robert Sharp, robert_sharp@platts.com

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