Ethanol Drops Against Gasoline on Slack Demand, Plant Restarts
Ethanol sank a third day against gasoline on concern demand isn’t robust enough to absorb supply from plants that are restarting as production costs ease.
The spread widened 11.92 cents to 78.76 cents a gallon, a day after Valero Energy Corp., the third-biggest U.S. producer of the fuel, said it restarted a mill in Albion, Nebraska, because of lower corn prices. A government report yesterday showed ethanol blending below year-ago levels.
“That’s the nature of the market to overreact,” said Shawn McCambridge, a senior grain analyst at Jefferies Bache LLC in Chicago. “With the weekly demand we’re seeing, we really don’t need a lot of production to come back on.”
Denatured ethanol for March delivery fell 3.8 cents, or 1.6 percent, to $2.329 a gallon on the Chicago Board of Trade, the lowest price since Jan. 11 and the steepest decline since Dec. 19. Prices have risen 6.3 percent this year and are up 5.2 percent from a year ago.
Gasoline for March delivery advanced 8.12 cents, or 2.7 percent, to $3.1166 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is blended with ethanol.
Ethanol’s discount to gasoline is the widest since Sept. 28, when it traded at 99.8 cents below the motor fuel.
At least 19 plants have been shut since June as drought in the U.S. baked corn crops, shrank yields and raised prices for the grain, according to data from the Renewable Fuels Association, a Washington-based trade group.
Southwest Georgia Ethanol LLC, another company that had idled output, said yesterday it plans to restart a distillery in Camilla, Georgia, in July as the local corn harvest begins.
An Energy Information Administration report yesterday showed production rose 1.9 percent last week to 789,000 barrels a day, the highest since Jan. 4, and up 2.5 percent from the 770,000 barrels a day in the week ended Jan. 25, the lowest since the Energy Department’s analytical arm began tracking weekly data in June 2010.
Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool last week, down from 91 percent a year ago, according to EIA.
McCambridge said ethanol prices would get a boost from higher overall gasoline demand, because the discount makes it attractive for refiners to use as much as possible to profit from the spread between the two fuels.
Corn for March delivery fell 0.75 cent to $6.9475 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.
The corn crush spread, the profit that can be made from turning a bushel of corn into ethanol, was minus 20 cents today, compared with minus 16 cents yesterday and minus 14 cents on Feb. 12, the least since June, data compiled by Bloomberg show.
The value of Renewable Identification Numbers, known as RINs, for advanced forms of ethanol, which includes the Brazilian grade, fell 7.8 percent to 53.5 cents yesterday, or almost double the worth of the conventional sort, which dropped 3.6 percent to 27 cents, data compiled by Bloomberg show.
Ethanol would also climb if exports could recover and imports would subside, McCambridge said.
Exports of the fuel in November, the most recent month for which data is available, totaled 965,000 barrels, the smallest amount since November 2010, EIA data show.
Ethanol imports averaged 11,000 barrels a day in the week ended Feb. 8 compared with none the previous week and none a year earlier, EIA said in yesterday’s report.
Spot ethanol in Sao Paulo cost $2.29 a gallon last week, according to data compiled by Bloomberg, 1.7 percent cheaper than futures in Chicago.
In cash market trading, ethanol prices were unchanged in most major regions. Ethanol held in New York at $2.49 a gallon, in Chicago at $2.38, in the U.S. Gulf at $2.43 and on the West Coast at $2.55 a gallon, data compiled by Bloomberg show.