March 12, 2020 / 8:14 PM / 3 months ago

U.S. ethanol industry 'bleeding' on oil collapse, coronavirus

NEW YORK (Reuters) - U.S. ethanol producers are feeling the pain as margins on the corn-based fuel slumped this week to an eight-year low for this time of year, weighed by concerns over lower fuel demand from the coronavirus and the recent collapse in oil prices.

FILE PHOTO: A tanker truck exits the Eco Energy storage and transfer facilities photographed in Philadelphia, Pennsylvania, U.S. on February 4, 2017. REUTERS/Tom Mihalek

The coronavirus outbreak, which has infected more than 126,000 people worldwide, is sapping demand for fuel as countries restrict travel and local governments try to prevent the spread of the outbreak.

Because the United States requires ethanol to be blended into the nation’s fuel pool, gasoline consumption plays a role in demand for the corn-based fuel. With falling gasoline prices and lower expected gasoline demand, some market participants said it’s only a matter of time before ethanol plants decide to cut rates or shut.

“At least half of the industry is bleeding red ink right now,” said Mitch Miller, chief executive of Carbon Green BioEnergy in Lake Odessa, Michigan.

Corn Belt ethanol refining margins fell on Wednesday to -6 cents a gallon, lowest for mid-March since 2012, according to Refinitiv Eikon data.

Margins have slightly recovered, last reaching 2 cents a gallon on Thursday. Oil futures have dropped sharply, losing nearly 50% so far this year, and gasoline prices have dropped as well.

“I have concern about ethanol margins,” RFA chief economist Scott Richman said. “What we don’t know right now is what’s going to happen to gasoline demand.”

Some 200 U.S. ethanol plants produced 1.04 million barrels per day of the fuel last week, U.S. Energy Information Administration data showed. Stockpiles totaled 24.3 million barrels.

GRAPHIC: Corn Belt ethanol refining margins slump with gasoline tmsnrt.rs/2IMHCY5

U.S. gasoline futures fell on Thursday to 85.36 cents per gallon, their lowest seasonally since at least 2005, Refinitiv Eikon data showed. Oil futures plunged by a third on Monday after the end of a supply cut pact between the Organization of the Petroleum Exporting Countries and other allies including Russia.

Last year, more than 10 ethanol plants cut rates or shuttered outright. Those idlings affected around 400 direct jobs, data from the Renewable Fuels Association showed.

“In our industry I would expect to see announcements similar to what we saw in July and August when margins were at similar levels,” said Nick Bowdish, chief executive of Elite Octane near Atlantic, Iowa, and Siouxland Ethanol near Jackson, Nebraska.

Reporting by Stephanie Kelly; Editing by Cynthia Osterman

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