ANALYSIS-Weak US ethanol profits could lead to more delays

By Haitham Haddadin and Timothy Gardner

NEW YORK, Oct 16 (Reuters) - More U.S. ethanol producers are expected to mothball refineries and delay new plant construction due to crumbling profit margins for the biofuel, hailed by U.S. President George W. Bush as a way to help wean America off of foreign oil.

In the latest announcement, privately held Alchem Limited, one of the oldest U.S. ethanol producers, said it will shut its 10.5 million-gallon-per-year plant in Grafton, North Dakota, next week.

The closure, expected to be temporary, comes after three other U.S. ethanol refiners canceled plans for new construction, among them major producer VeraSun Energy Corp VSE.N.

Over the past year, U.S. corn prices have increased sharply, making it more expensive for ethanol producers to buy the feedstock, and ethanol prices have fallen, thus squeezing the profits of ethanol producers.

"Certainly the economics of current commodity prices for ethanol producers are not very attractive," Raymond James analyst Pavel Molchanov said. "It is definitely a plausible possibility that some ethanol producers would shut production temporarily."

The shift comes on the heels of a boom in ethanol refinery construction since last year that has outpaced rising demand for the renewable fuel at a time when the price of corn -- the preferred feedstock for ethanol production -- has surged.

U.S. corn futures, at $3.60 per bushel, are up 27 percent from lows a year ago. But cash ethanol prices, either side of $1.60 a gallon, are down 35 percent from 2007 highs.

The crush spread -- the profit margin of turning corn into ethanol -- stands at 41 cents per gallon, down sharply from a 52-week peak of more than $1.10 per gallon in May, Molchanov noted, putting many ethanol producers in the red.