December 27, 2007

Ethanol cash margins likely to rise on US energy bill

Ethanol prices are now trading in line with gasoline prices for the first time since late August and, fueled by the new US energy bill, are likely to rise further, Citigroup said in a recent report.

"We firmly believe the new energy bill will serve as a significant catalyst to the ethanol industry, as the higher mandated ethanol levels stipulated by the new renewable fuel standard should serve to bring ethanol supply and demand back into balance, thereby strengthening ethanol's pricing fundamentals," said the report.

The bill stipulates biofuels consumption of 36 billion gallons by 2022. The US, the world's largest consumer of ethanol, consumed 5.6 billion gallons in 2006.

Gasoline prices remain high around US$2.45 a gallon, but "the story remains the continued increase in ethanol prices," says Citigroup.

Ethanol prices are currently at US$2.31/gallon, up 20 percent over the past three months. Ethanol cash margins are up 5 cents at 42 cents/gallon, recovering 38 cents since bottoming at 4 cents/gallon in September.

"Cash corn prices remain strong, although high corn prices continue to be outweighed by improving ethanol prices," said Citigroup.