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Expected US supply shortage exacerbates ethanol paper backwardation

http://www.chemnet.com   May 19,2020 S&P Global Platts
An expected shortage in US ethanol markets created the steepest backwardation between front and- second-month Chicago ethanol swaps in nearly six months Monday, according to S&P Global Platts data.

Platts assessed the front-month June Chicago ethanol swap 4.75 cents higher than its July counterpart Monday, the widest gap since the December and January swaps were assessed 10.75 cents apart on November 26.
As states have rescinded or eased stay-at-home restrictions across the US, demand for motor gasoline and its blending components such as ethanol have increased.

"Plants are coming back online as we speak," one source told Platts.

Crush margins have improved, and turned positive on Monday for the first time in three months, a further enticement for plants to come back online.

However, with as many as 60 plants fully idled and more than that operating at a reduced run rate, market expectations are that ethanol production will lag gasoline demand in the short term.

The decline in the availability of supply has driven up ethanol swap values in turn.

Since differentials for physical ethanol to paper values have been steady, the rising ethanol swaps have been driving ethanol prices higher for the last two weeks, despite limited liquidity in some markets.

Platts benchmark Chicago Argo ethanol assessment reached $1.1570/gal on Monday, its highest level since March 13.
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