US fuel ethanol demand to lag gasoline in recovery – Green Plains

HOUSTON (ICIS)– US Green Plains expects fuel ethanol demand to lag behind gasoline demand in the recovery from coronavirus shutdowns across the US, it said in an investor call.

“Recovery in gas demand could potentially outpace recovery in ethanol demand”, they said.

The company believes that when consumers start to drive again, biofuels will be necessary to be the Renewable Fuel Standard (RFS), which will increase the demand for fuel ethanol.

It also added that people will likely avoid mass transit and air travel, which should boost gasoline and ethanol consumption.

The rollout of E-15 – a blend of gasoline that is 15% ethanol, and was recently approved for use across the US – was also a focus for Green Plains, as its marketing and implementation was delayed by the coronavirus.

MARGINS

US corn prices are back to recent lows, while ethanol is stable, encouraging ethanol production margins, although according to Green Plains, spot crush was -1 cent/gal in the last quarter.

“Over half of the industry is at negative variable contribution margins, if not greater than that”, the company said.

So, while margins are improving, they remain unfavourable for most fuel producers.

“Last week we saw improved margins”, they said. “But with variable contribution margins negative, you can make more money in slowing or shutting plants.”

Ethanol is used as a gasoline blendstock, in pharmaceuticals, and in food and beverage applications, such as hand sanitizers and vodka.

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