The New York Mercantile Exchange has launched two new ethanol swaps contracts to compete with ethanol swaps on ChemConnect, which was recently acquired by the Intercontinental Exchange (ICE) and CME Group's ethanol futures and cash settled ethanol swaps, which it recently acquired by purchasing the Chicago Board of Trade (CBOT).
"It's going to be interesting to see if there is enough interest to become viable contracts. I expect them to be more of a slow burn," says Rick L. Kment, ethanol and biofuels analyst for DTN. "The thing that has made RBOB and crude oil so successful is not commercial traders, while they are an important part of it. It's really the investment and the non-commercial trader that takes that offsetting position; and especially with swap contracts, that kind of limits itself to being commercially driven."
R. Jeffrey DeReamer, managing director of EthanolMarket.com LLC, is more enthusiastic about the contracts. "Ethanol is more and more an energy product and less and less an agricultural product," he says, and that the ability to trade them on the same platform as RBOB gasoline swaps is an important development for traders who are trying to cover themselves in both positions. He adds that while ethanol is growing in capacity and in terms of world trade, as a true commodity, there is still room for growth.
Of course the entire grain complex, particularly corn, can be seen as an energy product. The CBOT ethanol futures contract has seen slow growth with open interest of just over 1,000 but its cash settled swaps contract launched last December has grown rapidly with open interest greater than 7,500.
The Nymex ethanol swaps contracts do not violate the non-compete agreement Nymex has with the CME Group, which hosts Nymex energy futures on the CME Globex electronic trading platform. A CME spokesperson says the key is that the Nymex swaps will trade on Nymex's OTC ClearPort Trading platform, adding that the CBOT contracts will migrate to CME Globex in the first quarter of 2008 from the eCBOT trading platform. CME also hosts Nymex metals contracts on Globex and has yet to announce a plan for the CBOT metals futures contracts, which may not trade on Globex as per the non-compete agreement.