The boost to US ethanol prices from drought has prompted an "increasing possibility" of Europe's top bioethanol plant reopening, despite soaring costs of its feedstock, wheat, too, a leading analysis group said.

The UK's Ensus wheat ethanol plant "could come back online" thanks to the improved economics for European Union manufacturers of the biofuel, thanks to the dent to competition from US exports rendered by changes in market pricing and import specifications, Czarnikow said.

The EU has now closed the loophole which allowed ethanol exporters to cut import duties by some two-thirds by mixing the biofuel with gasoline, so allowing it to be classed as a chemical product.

Ensus bosses cited competition with foreign supplies, which were backed from the US by blending perks too until the end of December, as a major reason behind their decision in May last year to mothball the plant.

Furthermore, the boost in prices of corn, the main feedstock for US ethanol plants, to record highs amid Midwest drought means "import margins into the EU are now closed".

'Relatively attractive margins'

"With imports currently priced out, the European market is offering an opportunity for domestic ethanol producers to increase production," Czarnikow, the London-based sugar and ethanol consultancy, said.

"The largest factor that could potentially impact the European market is the progress of the two ethanol plants in the UK," Ensus and the nearby Vivergo plant.

Vivergo backed by the likes of BP and DuPont, which in July delayed its opening date until the October-to-December quarter, citing "construction and commissioning difficulties".

Czarnikow said that with the closure of the import tax loophole, "and a return to relatively attractive operating margins, there is an increasing possibility of the [Ensus] plant restarting, which could add an additional 400m litres of supply on an annual basis from UK wheat".

'No formal decision'

However, Ensus itself on Friday maintained silence on plans to reopen that it heralded in April when it began work to enable a restart to occur more quickly.

"It seems like market conditions have improved. But Ensus have not made a formal decision over when then can restart," a spokesman told Agrimoney.com.

Prices of the group's own feedstock, wheat, of which Ensus and Vivergo are both designed to consume more than 1m tonnes a year, have risen.

London feed wheat futures for November on Thursday set a contract high of £197.05 a tonne, and up 29% from mid-June.

They stood at £196.55 per tonne on Friday, down 0.1% from last night's close.

Longer-term clouds

Czarnikow's comments came as it forecast a "positive" medium-term outlook for European ethanol producers, thanks to the improved economics for producers.

However, "there is much less certainty surrounding the longer-term prospects for the European market", the group added, noting the increasing preference of motorists for diesel, into which biofuels based on oilseeds are blended, over the gasoline into which ethanol is mixed.

Furthermore, many countries have yet to allow mixtures of ethanol in gasoline to be raised to 10%, and in those states which have allowed such a blend, called E10, the biofuel has attracted negative publicity.

"Germany is a prime example, as motorists have been scared by supposed risk to their vehicles of running on E10 as opposed to E5, exacerbated by negative press coverage.

"Consequently, E10 is perhaps only 15-20% to total gasoline use, despite major discounts at the pump."