Ethanol traders revived complaints about prices assessed by Platts five months after the energy news and price publisher was raided by the European antitrust officials probing potential manipulation in oil markets.
Platts ethanol prices aren’t reflective of the market and changes to its methodology are contributing to price fluctuations and disrupting shipping schedules, some traders said at a forum organized by Platts at its offices in London yesterday, which was attended by about 38 people. The publisher, a unit of New York-based McGraw Hill Financial Inc. (MHFI), said its assessments reflect market conditions.
“The absurdity of the system today is that, as producers, our interest is to send our product everywhere but not in Rotterdam,” the European oil-hub Platts uses to establish prices, said Arnold Kolin, Marckolsheim, France-based sales director of biofuels producer Tereos Internacional SA. (TERI3)
European Union antitrust authorities raided the offices of Platts, Statoil ASA, BP Plc, Royal Dutch Shell Plc and Argos Energies in May on allegations of collusion in setting prices of crude, refined products and biofuels. The EU inspected Abengoa SA (ABG), owner of continental Europe’s biggest bioethanol plant, as part of a probe into potential price manipulation. The authorities have yet to announce their findings or charge anyone following the investigations.
Europe’s ethanol market is illiquid, and with a limited number of trades considered in the Platts assessment process, prices don’t reflect fair value, according to the traders.
“Liquidity is a function of the market,” Simon Thorne, Platts global editorial director of agriculture and chemicals, said in an e-mailed response to questions. “One would expect less liquidity in ethanol than in a major product such as gasoline and diesel,” and fewer active participants given the smaller size of the market, he said.
Platts assesses prices through bids, offers and trades made by phone, instant message or online during prescribed times, known as the market-on-close process, or MOC, which subscribers to its service can see.
Price swings are exaggerated by low volumes underlying the assessments and ethanol producers don’t sell in Rotterdam because the area is oversupplied and prices are low, Kolin said. Increased sales in Rotterdam could erode margins and force some plants to close, he said.
“Our goal here is not to protect an industry, protect a margin,” said Jorge Montepeque, global director of market reporting at Platts. “We’re just the messenger of the market forces.”
Changes to Platts methodology, including allowing bids and offers to be adjusted by 1 euro ($1.38) a cubic meter every 20 seconds and shortening its time slots for assessing prices, have contributed to large price swings and shipping issues since they came into effect Aug. 1, traders said at the meeting.
Prices for ethanol barges in the Amsterdam-Rotterdam-Antwerp oil hub were at 646 euros a cubic meter on Aug. 5 and dropped to 556 euros two weeks later, according to weekly data from Kingsman SA, a biofuels researcher that was acquired by Platts in November 2012. Prices have fluctuated by 7 euros to 56 euros a week since August.
“It makes your price assessment process not very accurate,” said Erik Werner, a senior trader at Swedish producer Lantmannen Agroetanol AB. “Why does it change so much every day?”
Platts said the market is “operating effectively” and no shipping disruptions have been reported. The new guidelines “have not exacerbated or caused volatility in the market, rather we believe any moves in price to be a result of market conditions,” Thorne said in the statement.
Ethanol traders criticized Platts at a June meeting about the accuracy of its prices and vetting procedures for inclusion in the MOC system. Pannonia Ethanol, a Hungarian producer, complained to the EU last year, alleging Platts denied it the opportunity to participate. The company isn’t involved in the MOC process.
Eligibility criteria should be made transparent for new entrants, traders said again yesterday. Platts said its system for vetting participants is an internal editorial process.
“What we are looking for is that a counterparty has established a critical mass of potential counterparts,” including meeting requirements for credit, logistics and compliance, Thorne said at the meeting. “It’s important that people who are wishing to be involved in the process are trading in such a way that is acceptable to the market at large and in line with the conventions of that market.”
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