OUTLOOK ‘13: US ethanol producers to face thin margins in 2013

09 January 2013 19:14  [Source: ICIS news]

HOUSTON (ICIS)--Thin margins will continue to plague the US ethanol industry for at least another year, sources say.

The expiration of a key tax credit in 2012, a drought-devastated corn crop and high feedstock prices created an environment of thin margins that many say will linger well into 2013.

High corn prices have caused many US producers to idle plants and curtail production.

As a result, the US became a net importer of ethanol in 2012 - the first time that has happened in three years.

On average, the US imported 21,000 more bbl/day of ethanol than it exported in August, the first since December 2009 when the country had a trade balance of zero, the EIA said.

Since then, the US gradually exported more ethanol until the end of 2011 when the US exported 97,000 bbl/day more than it imported.

Brazil was the primary source of ethanol imports, sending an average of 56,000 bbl/day of ethanol to the US.

Meanwhile, Canada was the primary destination for ethanol exports, receiving an average of 28,000 bbl/day.

US ethanol spot prices declined in the last month of 2012, following the price of corn.

Corn futures fell about 8% in December 2012. Spot prices have fallen by about 10% in the same period.

Meanwhile, in Brazil, ethanol prices rose sharply in the last few weeks of 2012, lifted by tightening supply as a result of the end of the country’s key sugarcane harvest in the centre-south region.

The harvest in the centre-south, which accounts for 90% of Brazil’s ethanol production, runs from April to November/December.

Hydrous ethanol prices in Sao Paulo finished December at Brazilian reais (R) 1,350-1,370/cbm (cubic metre) ($2.50-2.54/gal), up by 15% from R1,180-1,200/cbm at the end of October when the first centre-south sugarcane mills began to shut down production.

Anhydrous ethanol prices showed an even stronger uptrend in the period, closing the year at R1,380-1,400/cbm, up by nearly 18% from R1,160-1,200/cbm at the end of October.

Brazil blends anhydrous ethanol in gasoline at a mandated 20%, while hydrous ethanol is used as a stand-alone fuel in flexible-fuel vehicles (FFVs), competing directly with gasoline.

The outlook for the first quarter of 2013 was mixed, with market sources seeing a limited uptrend potential for hydrous ethanol, because of competition from gasoline, but predicting that anhydrous ethanol prices may continue to rise.

Anhydrous ethanol supply is tight and spot prices could rise significantly in case of stronger demand, sources said, not ruling out the possibility that Brazil may have to import the biofuel from the US before the next sugarcane harvest begins in April 2013.

Additional reporting by William Lemos

($1 = R2.04)

By: Bobbie Clark
+1 713 525 2653

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