Ethanol growth to benefit US rail, barge firms

09 May 2006 18:14  [Source: ICIS news]

HOUSTON (ICIS news)--Transportation and other derivative markets offer the best opportunity for investors to capitalise on the fast-growing ethanol industry, JPMorgan analysts said on Tuesday.

“Investment in the ethanol complex anywhere in the world is fundamentally a play on government regulation,” said JPMorgan analysts. “Without subsidies to lower its cost and mandates to require its use, the economic viability of ethanol in the US is unclear even with today’s elevated gasoline prices.”

Most ethanol is produced by farm cooperatives and private ventures, which further complicates investments. Only two publicly traded companies, Archer Daniels Midland and Pacific Ethanol, have significant ethanol production.

Transportation firms, however, specifically rail and barge, stand to gain from the growth of the ethanol market, said JPMorgan.

The analysts rated Hornbeck Offshore Services, a major shipping firm, overweight, meaning it will outperform the average total return of stocks of similar companies.

“We believe that Hornbeck Offshore Services’ tug and tank barge fleet will benefit from the expected shortfall of ethanol product to the US Northeast as the fleet is critical to the supply of petroleum products in one of the US’s largest petroleum markets,” said the investment bank.

Two rail companies, CSX Corporation and Norfolk Southern also received the overweight rating. Burlington Northern and Union Pacific were rated neutral.

“Growth in ethanol consumption should provide a source of incremental revenue for all four US railroads,” said JPMorgan. The revenue potential would be modest relative to the size of total revenue for the companies, but still provide good margin business.

Also getting an overweight rating from JPMorgan was Marathon Oil, which has long had the practice of blending significant amounts of ethanol in its gasoline.

By: Joseph Lohan
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly