When buying ethanol, the most important information considered is the ethanol type and price. But the ethanol market is highly volatile, with product prices depending on much more than just the demand from the different food and industrial sectors; previous political and economic developments, as well as current trends, can affect pricing in ways that are more or less predictable by suppliers. Let’s dive into the most impactful factors for ethanol pricing and what developments to look out for in the next few months.
There are several factors affecting the pricing of ethanol, many of them being similar to other products’ supply chains and having strong interdependencies. The most important elements to take into account for the ethanol industry are:
After the loosening of COVID-19 regulations worldwide, the world economy has been seeing growing inflation rates and high investment uncertainty, meaning a decrease in consumers’ purchasing power and, therefore, demand. The Russian invasion of Ukraine contributed to that uncertainty, with prices of wheat - a commonly used raw material for ethanol in Europe - skyrocketing. At the same time, the market has mostly recovered from the supply chain issues caused by the pandemic, meaning an overshoot of supply that results in dropping ethanol prices.
One sector in particular has been having a big impact on ethanol prices: the shipping industry. After a disruption in container distribution during the pandemic and the resulting congestion of shipping vessels, shipping companies have stocked up on vessels in preparation for a market boom after the pandemic. However, the current low demand results in crashing freight prices and therefore falling ethanol prices. In addition to low freight costs, other factors impacting the price of ethanol, e.g. raw material costs, also decrease as a result of diminished demand.
Looking at the months ahead, freight prices and demand are expected to stay low, which also means low ethanol prices. While this is an opportunity for consumers to buy quality alcohol at a lower price, it is expected that the market will wait for further price drops before securing their shipments of bulk alcohol. Ethanol and bulk alcohol suppliers require a high skill level when it comes to anticipating the market and looking for new opportunities to deliver ethanol, for example, in niche industries or lower, more frequent quantities.
The ethanol distribution market and its prices are, like many other commodities, highly impacted by the current economic developments and the resulting low freight and raw material costs. These considerations require instant response and high flexibility from suppliers all over the world. At Nedstar, we see this situation as an opportunity to look even closer at our customers’ needs and continue our focus on supplying only the best quality alcohol.