Czarnikow Sees Improved EU Ethanol Outlook After U.S. Drought

Surging corn prices and policy changes in the U.S. and European Union mean the outlook for the EU’s ethanol industry has “improved dramatically” this year, Czarnikow Group Ltd. said.

U.S. ethanol prices have rallied as drought damaged corn crops in the Midwest, making the European biofuel more competitive, the London-based company said today in an e-mailed statement. The U.S. Congress allowed an ethanol tax credit for refiners to expire last year, and the EU tightened regulations on imports in March. Better prospects for profits may encourage plants to boost output, Czarnikow said.

“The closing of loopholes, coupled with the U.S. drought, have leveled the playing field for Europe’s ethanol producers,” Toby Cohen, a director at Czarnikow, said in the statement. “Healthier margins should now incentivize more production. But longer term, Europe has more work to do to encourage further investment, through better legislation.”

Denatured ethanol futures have jumped 21 percent since mid- June on the Chicago Board of Trade, tracking a 60 percent surge in corn prices on the same exchange. The Department of Agriculture has declared more than half of U.S. counties as disaster areas because of drought. In late July, U.S. ethanol output tumbled to the lowest since the Energy Department began tracking the data in 2010.

The outlook for European ethanol is more uncertain in the medium term because many countries in the bloc have reached their blending limits, and economic concerns have hurt gasoline demand, Czarnikow said.

To contact the reporter on this story: Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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