Global ethanol industry headed for tough 2008

05 March 2008 17:13  [Source: ICIS news]

SAO PAULO (ICIS news)--Ethanol producers had it tough in 2007 and the picture is likely be the same in 2008 due to continued upward pressure from feedstock costs and growing questions about the sustainability of the industry, an F.O. Licht official said on Wednesday.

"The industry had its best year ever in 2006, but since last year there was an impression that the same pace could not be sustained," F. O. Licht managing director Christoph Berg said during a conference in Sao Paulo.

Berg said volatile crude oil and feedstock prices have increased the risk premium for the global ethanol industry.

The impact on production costs was the highest for grain producers, the official said, adding that corn prices rose by 45% in 2007 while wheat values jumped by 43%.

The exception was sugarcane ethanol, which showed a 4% drop in production costs last year, he said.

F. O. Licht estimates production costs will rise for all ethanol feedstocks in 2008, with wheat jumping by 15% and corn rising by 5%. Meanwhile, the forecast for sugarcane is for a 10% increase.

Berg said the sustainability debate, including the food-versus-fuel controversy, will be an issue for the ethanol industry in the years to come.

"We can all expect to see future legislation that will attempt to separate ‘good’ from ‘bad’ biofuels," he said.

"There will likely be strict sustainability rules in Europe," said the official.

Other challenges for 2008 are cut-throat competition and a supply build-up, both of which have added to the risk premium in the industry, he said.

However, slower capacity expansion going forward will rebalance the market, and that may push ethanol prices higher in 2009, he said.

"So, maybe there is light at the end of the tunnel," he told delegates.

Berg spoke at F. O. Licht's Sugar and Ethanol Brazil 2008 conference. The event was organised in partnership with IBC Brasil.

Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels

For more on ethanol visit ICIS chemical intelligence

 

By: William Lemos
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