Haxo Bioenergy

Renewable, Sustainable, Low Carbon Biofuels and Clean Energy Company

Ethanol - ETBE (Week Report)


ETBE ETHANOL – T2 prices remained at around €440-445/cu m FOB Rdam for prompt delivery, steady over the course of the week, with T2 trading more than once at just above €440 for April delivery on Tuesday. A T2 tender from an oil major for up to 15,000mt/month for Q410 delivery attracted some attention just before the Easter break, with traders tentatively assessing likely prices at about €500/cu m FOB Rdam. Results are expected today.

Posted April 9, 2010

Ethanol - Latin America ( Week Report )

LATIN America – Increasing demand ahead of the holidays in Brazil helped reverse the recent price downturn and further rain over the long weekend added to the upward momentum. Domestic hydrous prices gained about R$80-100/cu m and are currently sitting around R$1,000/cu m ex-mill Ribeirao Preto (with taxes). Gains of up to R$150/cu m in anhydrous offers over the past week have taken them to R$1,050/cu m (same basis). There are reports of long lines of trucks to load ethanol at mills after strong pre-holiday demand and a return to competitiveness in major regions boosted demand for ethanol (1st graph). However, heavy rainfall in major growing regions has interrupted ethanol production and reduced already-tight availability. These higher domestic values have fed into indicative values for exports, although there is little prospect of substantial physical trading due to a further widening of the arbitrage. Notional bids for hydrous have been raised by $40/cu m to $480/cu m FOB Santos but offers are $90/cu m higher at $550/cu m. Anhydrous ANP bids are quoted in a notional bid/offer spread of $500-635/cu m FOB Santos with the margin widening from $70/cu m last week to $135/cu m this week. Similarly, bids for EU Grade Anhydrous rose $30/cu m to $530/cu m but offers jumped $70/cu m to $650/cu m.

Posted April 7, 2010

Ethanol - ETBE Report ( Week Report)

ETBE – T1 prices are steady-to-firm, at around US$507/cu m FOB Rdam (traded on Tuesday for April) while the T2 sector remains under pressure. T1 markets are firmer thanks to stronger ppt/April buying interest which has emerged in the past week, and supply is also not as long as some may have anticipated. Expectations that an excess of US material would hit the market in March haven’t materialised and there have been rumours of washouts and/or of US material being diverted to other more profitable locations e.g. Asia, possibly as industrial grade ethanol. Traders tend to suggest that this “diverted” volume is limited to just a few cargoes. There is still some interest in the US to EU arbitrage, due to the current firmer T1 outlook and recent fairly soft US domestic pricing. We expect that stricter sustainability requirements due in place in Europe in 2H10 may however dampen any EU buying interest and limit any arb even further.

Posted April 4, 2010

Ethanol - Latin America ( Week Report )

Latin America – Brazil’s domestic prices fell further last week but wet weather and increased demand helped arrest the decline and may point to a firming in values going forward. Only a small proportion of mills had begun crushing the 2010/11 crop and fine weather had allowed them to make excellent progress prior to the weekend. However, heavy rainfall across the region has disrupted operations and interrupted supplies. Renewed demand from distributors, who are beginning to see some recovery in hydrous demand now that prices have become competitive in six or more states, is also provided support. Nevertheless, Hydrous traded at about R$900/cu m ex-mill Ribeirao Preto (with taxes), down R$80/cu m on the week with offers at R$910-920/cu m. Anhydrous offers fell by a similar margin to R$920/cu m (same basis). This has allowed further discounting on export markets with hydrous offers slipping $50/cu m to $460/cu m FOB Santos while bids dropped $40/cu m to $440/cu m. Anhydrous ANP values are now assessed in a $480-600/cu m FOB Santos bid /offer range, down $60/cu m. EU Grade Anhydrous bids fell $50/cu m to $500/cu m FOB Santos while offers slipped $60/cu m to $580/cu m.

Ethanol - Latin America (Week Report)

Latin America – Ex-mill prices in Brazil continue to fall on weak demand, but the retail market appears to be lagging behind with values there little changed over the week. Hydrous traded yesterday at R$1,050/cu m ex-mill Ribeirao Preto, down as much at R$150/cu m on the previous week. Anhydrous prices suffered a similar fate with values falling R$140/cu m to R$1,080/cu m (same basis). However, the drop in producer prices has yet to flow through to retail markets (1st graph) and ethanol still remains uncompetitive in all but two states so the drop in prices has not yet stimulated a recovery in domestic demand. Unica has recently attempted draw attention to the issue and has called on the government to provide incentives for producer stockpiling to ensure supplies in the inter-harvest period. Indicative export values dropped sharply again this week, with the fall in domestic values accentuated by a stronger Real. Hydrous ANP offers fell $50/cu m to $550/cu m FOB Santos but bids were steady at $480/cu m. Indicative anhydrous ANP offers dropped $70/cu m to $650/cu m but still remain distant from bids which fell another $10/cu m to $500/cu m. EU grade Anhydrous is indicated in a $600-700/cu m FOB Santos bid/offer range with bids and offers both down $50/cu m.

Ethanol - ETBE (Week Report)

ETHANOL – T2 markets suffered a drop early this week, while the T1 market has endured choppy conditions, bouncing back to US$595-600/cu m mid last week, but weakening to the US$570s-580s early this week. Two-tier pricing continues to emerge however, as US$598-600 was also reportedly booked Monday possibly for Brazilian origin, with lower offers and trades in the US$570s booked Tuesday heard for “any origin” T1. Greater availability is the culprit – with more US material suggested to be a driver. The drop in T2 seems to be due largely to fallout from weaker T1 values, and also adequate supply; €499/cu m FOB Rdam was heard traded on Monday. We also heard €499 as a DDU (delivered duty paid) Q2 offer level being shown to consumers. Press reports said Ensus has produced and is delivering its first commercial volumes of ethanol this week. EU producers are no doubt concerned at the dip below the psychological €500 level, which threatens to get painfully close to production costs, despite ongoing relatively low grain feedstock costs.

Posted March 4, 2010

Ethanol - Latin America (Week Report)

Latin America – Brazil’s domestic prices continued to fall this week with reduced demand and some additional inter-harvest production alleviating the tight stocks position. Hydrous prices traded as low as R$1,150/cu m ex-mill Riberao Preto (with taxes) yesterday with offers currently pegged at R$1,200/cu m, down another R$50/cu m from last week. Anhydrous offers are R$40/cu m lower at R$1,220/cu m (same basis). Anhydrous supplies are a little tighter than those for hydrous and analysts suspect that there will be a greater focus on hydrous production in the early part of the 2010/11 crush. The large buying group, Sindicom, were absent from the market last week, contributing to the drop in values. Export values have dropped in line with domestic price falls. The notional bid/offer range for Hydrous ANP is now cast at $480-600/cu m FOB Santos, down $35/cu m on last week. Anhydrous ANP prices have dropped by $30/cu m and are now seen in an indicative $510-720/cu m band while EU Grade Anhydrous prices have fallen by a similar margin and are now priced at $650-750/cu m.

Posted March 3, 2010

Ethanol - ETBE (Week Report)

ETBE ETHANOL – T2 has shed €5-10 on the week, which compares favourably to the much larger losses seen in the T1 sector this week. T1 slumped by US$55-70 on the week, with the fall in values attributed mostly to the presence of and increased offers of US material in Europe. It looks like even some traditional Brazilian-only buyers in Europe have been unable to resist the competitive prices for US material – for example, we are seeing some volumes going into the UK market (including a 10,000 cu m lot in February). The Netherlands is also thought to be using some product in its domestic market, and some consumption of US ethanol for ETBE production in Northern Europe is likely.

Ethanol - Latin America (Week Report)

Latin America – Improved weather and weak hydrous demand continue to impact on Brazil’s domestic ethanol prices. Recent warm, dry weather has given those millers who decided to continue through the inter-harvest period some breathing space and also improved the prospects for an early start to the 2010/11 crush. Hydrous prices remain uncompetitive in the most states, supporting increased gasoline C use at the expense of hydrous. Petrobras has indicated that Brazilian gasoline demand increased 15-20% so far in 2010, compared to the previous year. Hydrous offers this week have dropped to R$1,290/cu m ex-mill Ribeirao Preto (with taxes) but trades have occurred as low as R$1,250/cu m, down R$50/cu m from last week. Offers of anhydrous have dropped to R$1,300/cu m, down R$30/cu m. Export offers have fallen as a result of lower domestic prices and despite a firmer Real. Export hydrous prices are now seen in a notional bid/offer spread of $515-635/cu m FOB Santos, down $15/cu m on both ends of the range. Indicative values for Anhydrous ANP fell $10/cu m to $540-750/cu m while prices for EU Grade Anhydrous are down by a similar margin, now pegged in a $680-780/cu m FOB Santos band

Decisions Are More Important Than Results

Managing for results — pay for performance schemes and the like — are fundamentally flawed if that is the only criterion for evaluating managers. We have observed more than the average share of businesses, managers and employees, and we have serious doubts about this almost universal approach to managing firms. Far better, we believe, to reward people for their decisions and decision-making processes. Our argument is based on six assertions.

1. Results are irrelevant as a measure of decision quality.

People, including managers and business leaders, typically equate the quality of a decision with the quality of the result. When people observe a good result, they conclude that they made a good decision. Likewise, when a bad result is observed, people conclude that a bad decision was made. This is not true. Decisions and results are two different things. Time elapses between a decision and the realisation of its result. Decisions are made at a specific moment in time; afterwards, people implement these decisions, and the result is observed in the future. The future is uncertain: there are no facts about the future, and nobody has a crystal ball. In the future, events can happen that managers and organisations cannot control. Also, events can happen that managers could not foresee. Such events can cause good decisions to have a bad result — and vice versa. Therefore, the quality of the result is not an indicator of decision quality, and the result is irrelevant as a measure of decision (and execution) quality

2. Results don’t necessarily reflect a high-quality process.

Decision quality is measured at the moment someone makes a decision, but decision making is a process. To determine quality, in general, we need a criterion. So it is for the quality of decisions. There are thousands of criteria in business: in the Finance area, managers use profit, cost, return on investment, cash flow and price/earnings ratios. In Marketing, the criteria include sales volumes, market share and customer satisfaction. Go to Operations and one finds inventory levels, efficiency and production quality. Walk to Human Resources and one finds employee satisfaction, turnover and organisational morale. In sum, people make decisions in all functional areas in business; but the underlying process is the same. That’s why decision making is a generic leadership skill.

The ultimate criterion for good decision making is tied to three critical questions:

  • What are we trying to achieve with this decision? (the criteria)
  • What can we feasibly do? (the alternatives)
  • What do we have to watch out for? (the consequences)

The answers to these questions will reveal the alternatives, actions and choices that the decision makers have — and, on the third question, the answer leads us to specify the consequences of our possible alternatives. Good decision making also requires relevant and useful information.

Deciding is (1) valuing your alternatives at the moment you have them (2) on the criteria you have identified and (3) with the best information available at that time. Value is the only justification for your actions in business. The answers to the questions on criteria, alternatives and consequences come from the decision makers’ knowledge, understanding, experience and intuition about the business issues. The process of decision making, therefore, is a mechanism to leverage the collective knowledge, experience and intuition of a group, team or organisation. It allows this intuition to be discussed, challenged and refined. Intuition is at the bottom of the decision-making pyramid, for it is the foundation. 

The experience of people in a business is always relative. In some situations, a person making a decision has more experience than others in the workplace; in other situations, less. Therefore, good decision making requires managers to be humble, recognising the context and ascertaining whether their knowledge, experience and intuition applies more or less. Good decision making starts by recognising that there is no monopoly on wisdom; we can all learn something from each other. The process of decision making forces us to be reflective, analytical. We all know we have to use some process while making decisions. However, how many times do people really do this consciously? Typically, both managers and employees would rather act first then reflect later (if at all).

The process of decision making is critically important and essentially about effective communication, which is reflected in the three questions noted above. As a result of effective communication, the parties involved develop a shared understanding of the issues they are dealing with. This ultimately leads to joint commitment to action, which means that, even if a person’s favourite alternative has not been chosen at the end of a decision-making process — by virtue of having participated in a good process, there is a much greater chance that he or she will still support the alternative decided upon.

3. Using results as a measure of decision quality leads to organisational crises, even bankruptcies.

It is wrong to use a result as a criterion for a decision-making process. Assume a great business opportunity arises in which a manager makes a good decision but experiences a bad result because of some outside uncontrollable and/or unforeseen event. This manager will typically not be promoted and could even be fired, after being blamed for the bad result. By this action, the boss has fired a good decision maker, but the boss has done something much worse to the organisation. Eventually, the terminated manager’s colleagues — his team, his business division and, in time, the whole organisation — will soon realise that he or she was unjustly held accountable for the bad result, that the fired manager was blamed and punished unjustly. From that point forward, who else in this organisation will want to take initiatives, make decisions, experiment and innovate? No one. People will realise that, even when they make a good decision, a bad result will result in blame or termination, irrespective of the quality of the decision-making process.

A blame culture triggered by bad results stifles experimentation, innovation or trial and error. If leaders do not tolerate failure and error in our business innovations, they will kill the prospect of anyone taking any initiative. Since business activity is the primary engine for personal income growth, value creation and societal economic development, an organisational culture built on blame and punishment has implications beyond the boundaries of our any one business. Taken to national proportions, a blaming culture inhibits societal growth, development and evolution. Managing for results leads to crisis, at the least; it can lead to bankruptcy, at the worst.

4. Being accountable only for results is not the right standard for performance.

Of course, people must be held accountable for what they do in a business context; but they need to be held accountable for the right things. They need to be held accountable for things under their control, that is, operating with a good process of high quality. They should not be held accountable for uncontrollable events.

Conversely, if business leaders only want good results, it is easy to understand that, ultimately, any process to achieve good results will become acceptable — even an illegal process. This is yet another way in which managing for results can become the origin of crisis and bankruptcy. A manager who achieves an excellent result but, in the process of achieving it, has demotivated his team is clearly not a good leader.

Think of the current economic crisis. Sub-prime mortgages were driven by banks wanting to do more business without carefully considering creditworthiness, the risks involved in borrowers not being able to repay their mortgages. A few years ago, almost anybody could get a mortgage. And banks repackaged thousands of these unsafe loans into CDOs (collateralised debt obligations) to sell as a bundle of bad loans to investors — again, doing more and more business without looking at the quality of the transactions, that is, the inherent risk associated with such business.

Tools such as Management by Objectives and Balanced Scorecards are, when used properly, helpful. Such management tools help people review and better understand the criteria involved in the process of decision making. Their proper use, then, is for setting objectives, criteria and measuring progress on them. However, such tools should never be used for evaluating people working towards a set of objectives.

5. It’s not enough to measure organisational leaders on results; how they achieved them is equally important.

Of course, results are not irrelevant for organisations and their leaders. A company that always makes good decisions and is always excellent at execution — but, too often, yields bad results — will go bankrupt. The CEO is ultimately responsible for the good results for the organisation, a responsibility to the shareholders who demand good results. But this question must also be considered: what can companies do to achieve good results?

Companies typically do two things to achieve, on average, better results. First, they implement a good process. Managers can learn to become better business executives. They can learn the process of decision making, learn how to be better at execution and build their business via the knowledge, experience and informed intuition that is inherent in decision making and execution. Out of this, managers will find that they are becoming better, more thoughtful business leaders — more aware and better informed about what they are doing.

Second, companies manage the risk inherent in any single business project, division, product, market, service and delivery channel. Diversification is a way of managing risk inherent in single projects. By having multiple products, markets (on a global scale), services and delivery channels, an organisation diversifies its risk. Some projects and businesses will be successful; others might be less successful; still others might fail.

That is why the CEO can (and must) be held responsible for the overall results of the enterprise. CEOs oversee a sprawling and usually complex organisation, and their personal career risk is diversified as a result. That is, they are judged by the average of all (both good and bad) results inside the corporation. However, going down the organisational hierarchical chain, those managing the divisions, departments, teams and projects become less and less diversified. It is a bad CEO who enforces the requirement for everyone in the company to deliver good results all the time.

But isn’t that exactly what many CEOs have been doing? That is, they desired universal good results and, therefore, they have delegated this responsibility to everybody else in their organisations. This is unreasonable and ineffective. Down the organisational hierarchy, many managers are in charge of single products, single markets, a single delivery channel and/or a single service. As a consequence, they are exposed to the inherent risk associated with these single business projects. Many CEOs have not understood this very well. It is a bad CEO who does not shield his or her managers from the risk inherent in their less-diversified projects and who do not recognize quality of process as being more important than occasional bad results.

6. Being compensated only for results doesn’t measure one’s true contributions to the organisation.

Managers traditionally get bonuses for good results. Corporate compensation systems are built around achieving good results. This is simply wrong. It is wrong to use a financial bonus to motivate and encourage managers to achieve good results, if that is the only reward they can earn. If a bonus is used to reward good results, it implies that managers are evaluated only on their results; and, ultimately, managers can (and have!) found themselves doing anything to achieve good results so as not to forfeit a bonus. Managers have even been found to engage in illegal activities in order to make the results required to earn a bonus.

An important note: we are not opposed to bonuses. The proper use of a bonus is for enjoyment — collective organisational enjoyment — of the good fortunes of the organisation if good results happen. Any other use of a bonus is misplaced. However, good managers will, in the long run, yield good results by adhering to a good process more often than bad managers using a poorly thought-through or malevolent process.

It is, of course, possible that bad managers using wrong processes will sometimes enjoy good results. But their luck will run out eventually. Therefore, in the long run, it is necessary for organisations to evaluate the quality of a manager’s decision-making process over the span of his or her career. Over time, managers will make many decisions and take many actions. In this sense, the cumulative body of their decisions and actions can be seen as diversified. If they use a good process for making decisions, then, on average, they will experience good results more often than bad results. Organisations should therefore reward on the longer-term performance achievements of managers. This can be done by many means, such as promotions to levels of higher responsibility or authority as well as base salary increases. Ultimately, managerial career progress and base salaries should reflect a company’s commitment to the overall quality of a manager’s contributions to the organisation. It may seem controversial, but we firmly believe that even managers with bad results should be rewarded — if they have used a good decision-making process.