Nybot To Revive Ethanol Futures As Biofuel Use Surges 56 hours, 16 minutes ago
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; [email protected]
