Ethanol Industry Looks to Drivers and Exports for Path Out of Slump
After experiencing a first quarter slump in 2015, the ethanol industry is seeing market support from increased driving and improved U.S. gasoline consumption.
After realizing record 2014 profits, corn-based ethanol producers experienced a large decline in operating income at the start of 2015. The slump is being largely attributed to the drop in wholesale ethanol prices – pressured by the decline in crude oil and gasoline prices in late 2014. Valero Energy Corp. reported a 95% drop in operating profits for the first quarter of 2015 – falling to $12 million from $243 million in the first quarter a year before. Other operators reported first quarter profits dropping by as much as two thirds or more.
However, market conditions seem to be taking a positive turn as industry officials state that Americans are driving more, with the increased demand even causing some producers such as Green Plain, the country’s fourth largest producer, to invest in increasing output.
“U.S. gasoline consumption continues to improve,” Juan Luciano, CEO of Archer Daniels Midland (ADM) told analysts on a conference call last Tuesday, the Star Tribune reports. “That will translate into stronger domestic demand for ethanol. These, combined with strong exports, will keep our assets running hard, especially as we move through the summer driving season.”
For the six months ending March 2015, U.S. gasoline consumption increased 2.7% over the same time period a year before, according to the U.S. Energy Information Administration, which expects to see a further increase in consumption of 1.6% over the course of the rest of the year due to lower fuel prices and a recovering economy.
U.S. ethanol exports are expected to be between 800 million and 1 billion gallons this year, and according to Todd Becker, chief executive of Green Plains, owner of 12 ethanol plants, ethanol production should be profitable this year. In 2014, U.S. producers exported 836 million gallons – a 35% increase over 2013, but still short of the record exports of 2011, according to the Renewable Fuel Association.
If lower prices drive up consumption and exports as predicted, U.S. ethanol plants may be running at full capacity and will likely even need to rely upon inventories in storage, according to Becker. In addition, low commodity prices for corn have also relieved the industry, keeping margins strong going into 2015.