US industrial ethanol demand remains strong, expected to be a long-term trend

HOUSTON (ICIS)– Heightened demand for sanitizers, and consequently industrial ethanol, is expected to be a long-term trend even if a coronavirus vaccine is made.

Many large alcohol distributors and producers are now investing in or considering the permanent switch to industrial ethanol and sanitizer production as increased sanitization efforts are now considered a long term consumer trend.

As US fuel ethanol producers continue to feel margin pressure, despite indications of demand recovery, some are considering the switch to industrial production for the long term.

Smaller fuel producers are more likely to consider the switch, as larger fuel ethanol producers are typically able to weather downturns for a longer period of time.

If demand for industrial remains elevated as part of a longer term trend, the switch to industrial production could be worth the investment, as producers are likely to return the costs.

Fuel producers continue to lament the low margin territory that has resulted in shutdowns across the industry, as the coronavirus has essentially halted road travel.

The blow to fuel ethanol was especially present in Q1 earnings, which left some with negative earnings and a demand loss of over 50%.

Industrial ethanol contracts previously settled at an all time high as demand skyrocketed as consumers purchased more hand sanitizer and cleaning products.

Third quarter contracts remain under discussion while the same demand dynamics continue and supply remains tight.

Brazil faces similar production trends regarding industrial ethanol, although their ethanol producers tend to make a smaller amount of industrial than the US.

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