Insight Focus
- Ethanol and molasses prices can be closely correlated.
- This is because most of the world’s cane molasses are consumed by ethanol producers.
- Here, we illustrate how the two are related when it comes to price.
High Energy Costs and Geopolitical Tensions Hit Molasses Market
Energy costs have become a talking point for businesses and consumers. They are adding to business’ running costs across the board and are creating a “cost of living crisis” for consumers.
In the world of molasses, the main impact has been in transportation so far, in terms of domestic trucking costs and international tanker freight rates. Oil at over 90 USD/bbl has driven transportation fuel costs up and bunker fuel prices for sea freight have also increased.
The molasses market is very sensitive to transportation costs, as molasses is a relatively low value commodity and transport, and logistical costs comprise a large component of the final sales price. The increase in transportation costs won’t likely improve in the short to medium term as prices are still supported by increased geopolitical tension between Russia and Ukraine.
In addition, OPEC appears unable to rapidly increase production, especially with Iran’s continually limited crude exports due to sanctions and reductions in oil infrastructure investments in other producing nations during COVID.
Geopolitics are also a concern, not just in terms of the increase in oil and fuel prices, but in terms of molasses supply. Russia is a large exporter of beet molasses. Russian Black Sea and Asov ports export over 200k tonnes of beet molasses per year with destinations in Turkey, the Mediterranean and Asia. There’s a potential for trade to be disrupted from the region and the confirmed threat of sanctions against Russia from the US, UK, and the EU.
The disruption to supply chains, increases in energy costs and geopolitical tensions aren’t unique to molasses and are being felt across all countries, economies, businesses, and consumers globally.
As noted above, the molasses price is sensitive to increases in transportation costs and Russia is an important supplier of beet molasses to the world market. The molasses market could therefore be particularly affected over the next few months.
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