February 21, 2019 / 6:30 PM / 3 months ago

S&P Global Platts seeks revised U.S. ethanol pricing method amid trader concerns

(Reuters) - S&P Global Platts said on Thursday it was proposing changes to the assessment methodology behind its Chicago ethanol price, which is used broadly as a benchmark for supply deals around the country, after receiving feedback from traders.

The proposed change would expand the daily cash assessment to include barge, rail and truck deliveries at the Chicago pricing hub of Argo, not just storage tank transactions.

Ethanol producers had been complaining for months that the current system for benchmarking ethanol is vulnerable to manipulation - an issue of urgency as weak demand growth, a loss of export markets due to Chinese tariffs, and aggressive selling by global commodities giant Archer Daniels Midland Co pushed prices to 13-year lows.

“We want the broadest amount of buyers and sellers to participate, not just those who control tank space, Dave Ernsberger, Global Head of Markets Reporting, S&P Global Platts, said in a phone interview on Thursday.

Platts said it will also seek to limit the speed of changes to bids and offers for ethanol during the assessment window to better reflect market activity.

Tens of thousands of barrels change hand at the hub every day, but many more barrels across the country depend on the price. Ethanol trade in the cash market at the Kinder Morgan Argo hub is used in contracts for the biofuel across the country, and is also baked into international contracts.

The proposal will have an open comment period that ends March 30 before becoming official.

Critics have said the current Platts system can be easily influenced because it is based on deals that occur only during a 30-minute window each day, as opposed to during the whole day. Critics also say its easier to move product into Argo, than getting it out, allowing companies to drive the price down faster and for longer.

In November, commodities giant ADM represented more than 90 percent of sales in the Chicago Platts window, two traders said, demonstrating the potential sway of a big player seeking to affect Platts price assessments.

“It’s a good first step, but does not solve the problem,” said an ethanol trader on Thursday. “I think it’s a good sign that all parties are coming together and trying to find a solution.”

Kinder Morgan Inc, which owns the terminal, will expand loading capacity by adding more barges and tank space to help move ethanol out of the hub, Reuters reported on Wednesday.

The issue has become more urgent as slumping prices force producers like Green Plains, POET and Valero to shut, idle, or sell off plants.

Reporting by Jarrett Renshaw; Writing by Richard Valdmanis; Editing by Tom Brown

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