DJ Nybot To Revive Ethanol Futures As Biofuel Use Surges soon to capitalize on growth in biofuel demand
and output as fossil-fuel prices climb, exchange officers said this week.
DJ Nybot To Revive Ethanol Futures As Biofuel Use Surges
8:01 AM, May 8, 2006
By Susan Buchanan Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The New York Board of Trade plans to revise its ethanol
futures and options contracts soon to capitalize on growth in biofuel demand
and output as fossil-fuel prices climb, exchange officers said this week.
Initial enthusiasm for the contracts - introduced two years ago - waned, and
open interest in futures eventually shrank to zero.
"The ethanol committee plans to meet in two or three weeks and may change the
contract's minimum delivery from 80 lots now in response to industry demand,"
said Joseph O'Neill, senior vice president at Nybot. Other specifications will
probably be changed only slightly, he said.
Industry members said a New York harbor delivery is being considered to make
the Nybot contract attractive to U.S. gasoline blenders - now using more
ethanol as refiners phase out methyl tertiary butyl ether, or MTBE, this
spring. Nybot's current contract calls for ethanol to be delivered free on
board to ships in Brazil, the top cane-ethanol exporter.
Conditions are ripe to kick-start the Nybot contract, which is
internationally oriented and based on cane ethanol, O'Neill said. Biofuel
demand is rising worldwide, led by Brazil's recent successes with flexible-fuel
cars, he noted.
More than 60% of global ethanol output is derived from sugar, with half of
that provided by Brazil. While corn is the main domestic feedstock for U.S.
ethanol, in Brazil and other countries sugar is less regulated than in the U.S.
and the economical stock.
In the U.S., ethanol demand should expand 25% or more this year as refiners
voluntarily replace MTBE with ethanol to avoid water-contamination lawsuits,
analysts said. Every major U.S. oil refiner plans to stop using MTBE before the
2006 summer-driving season, Guy Caruso, head of the federal Energy Information
Administration, said last month.
The U.S., a top corn-ethanol producer, imports sugar-ethanol duty free under
the Caribbean Basin Initiative while slapping a 54-cents-a-gallon tariff on
cane ethanol imported from Brazil and other nations outside the CBI. On May 4,
U.S. Energy Secretary Samuel Bodman said that President George W. Bush has
urged Congress to consider lifting the tariff on imported ethanol.
The U.S. imported 118.4 million liters of cane ethanol from Brazil in 2005,
according to the International Trade Commission, and analysts say that quantity
could double in 2006. Brazil's ethanol shipments to all destinations in 2006
may be close to, not above last year's 2 billion liters, however, since that's
all that will be available, industry members there said. Brazilian growers have
begun harvesting another record cane crop, and the industry will use about half
of it for sugar and the rest for ethanol for domestic use and exports.
Meanwhile, the Chicago Board of Trade and Chicago Mercantile Exchange both
trade corn-based ethanol contracts.
But "ethanol is the same whether it's produced from sugar or corn, and the
bio mass doesn't affect the end product," said Bernard Savaiko, chief economist
at Nybot.
Ethanol futures started trading on the Brazilian Commodities and Futures
Exchange in Sao Paulo in 2000, and volumes grew slowly. Ethanol futures were
introduced on Nybot in May 2004, trading in the world-raw sugar ring. In June
2004, 583 lots of Nybot-licensed ethanol were delivered at Brazil's port of
Paranagua and then interest dwindled.
The CBOT launched its open-outcry and electronic trading in ethanol futures
in March 2005, and the CME started its electronically traded contract then.
The Nybot contract represents 7,750 gallons - the amount of ethanol produced
from 112,000 pounds of sugar, the size of the Nybot world-raw sugar contract.
The CME and CBOT contracts call for delivery of 29,000 and 30,000 gallons of
corn-based ethanol, the amount that fills one railroad tanker car.
Open interest in the CBOT futures is 897 lots, and that exchange plans to
start trading its ethanol futures electronically in addition to open-outcry on
May 31.
Meanwhile, U.S. sugar growers are exploring the profitability of producing
ethanol and waiting for direction from a U.S. Department of Agriculture
feasibility study on ethanol, to be released in two months. Hawaiian cane
producers are already making sugar-based ethanol.
Archer Daniels Midland (ADM), the top U.S. corn-ethanol producer, is expected
to be a major player in ethanol futures. Shares of ADM sped to a 52-week high
of $43.61 on the New York Stock Exchange on Wednesday, only to set back as
Washington mulled removing the 54-cent-per-gallon tariff on imported ethanol.
Demand for U.S. corn for ethanol is rising, but American growers expect to
seed fewer corn acres in 2006, according to the USDA's planting-intentions
report.
-By Susan Buchanan, Dow Jones Newswires; 201-938-5950;
susan.buchanan@dowjones.com
|
