October 26, 2007 / 6:19 PM / 12 years ago

ANALYSIS-US ethanol profit up on oil, but times still tough

NEW YORK, Oct 26 (Reuters) - Weekly average U.S. ethanol profits have inched higher on stronger gasoline prices, but some ethanol biorefiners are still making almost no profit.

Oil prices have been setting records in recent weeks — and briefly surged past $92 a barrel on Friday — which has given ethanol producers hope of better profits. “Ninety-dollars-and-higher oil certainly helps. Gasoline has moved up on stronger crude and that does pull up ethanol prices,” said Pavel Mulchanov, an energy analyst at Raymond James in Houston.

When gasoline prices rise, some blenders look to add more ethanol to gasoline grades that do not require it by law, boosting prices for the renewable fuel.

NYMEX RBOB gasoline futures gained about 10 cents since early last week to about $2.25 per gallon on Friday. Ethanol was also stronger, which helped profits, but was far cheaper than gasoline. Spot Midwest ethanol <ETHANOL/US> was trading around $1.73 per gallon on Friday, up about 13 cents from early last week, oil products traders said.

Stronger fuel prices helped push the ethanol crush spread up about 4 cents since early last week to 45 cents per gallon, Mulchanov said. Stronger prices for U.S. ethanol feedstock corn CZ7 helped cap the profits. Corn was up about 14 cents since early last week to about $3.74 a bushel.

Molchanov said even though the crush spread had inched higher, countrywide blending capacity bottlenecks have kept ethanol prices so low that many biorefiners are not making any profits.

Blending backlogs have led to gluts of the renewable fuel in many markets, particularly in the Midwest. That puts downward pressure on the fuel’s price for all producers, Mulchanov said.

Poor ethanol margins this autumn have led at least three biorefiners to postpone plans to build or expand plants totaling about 250 million gallons per year as U.S. production capacity has jumped 30 percent since Jan. 1 to nearly 7 billion gpy [ID:nN16444832].

John Kruse, a biofuels analyst with Global Insight, said refiners who manage to sell the animal feed known as distillers grain — a byproduct of ethanol production — could be making slightly better profits than those who do not.

But Mulchanov said even those that do sell it will not make solid profits until the blending backlog clears up. “It’s really about the disconnect with ethanol and gasoline that’s hurting the industry right now,” he said. “That’s not likely to clear up for months.”

Both analysts said biorefiners that have problems shipping ethanol may be making only a few cents a gallon or even no profit.

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