Ethanol’s Discount to Gasoline Widens as Gains to Spur Imports

Ethanol’s discount to gasoline widened on speculation that the biofuel’s best yearly start since 2006 will spur competition from imports.

The spread expanded 3.91 cents to 66.33 cents a gallon, the widest since Sept. 28, on concern that ethanol’s 9 percent jump so far this year will open a spigot of Brazilian imports, displacing supply of the corn-derived domestic variety.

“It does encourage the import side of things,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “That’s the negative part of the market.”

Denatured ethanol for March delivery decreased 1 cent, or 0.4 percent, to $2.387 a gallon on the Chicago Board of Trade. The fuel’s surge to start 2013 is the biggest for this time of year since 2006, when the additive jumped 31 percent from the end of 2005 to Feb. 13, 2006.

Gasoline for March delivery climbed 2.91 cents, or 1 percent, to $3.0503 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is blended with ethanol.

Ethanol prices have risen as the industry has shut at least 19 plants to help drain a glut of the fuel and combat higher production costs, according to the Renewable Fuels Association, a Washington-based trade group.

The U.S. didn’t import any of the fuel in the week ended Feb. 1, the first such instance since Sept. 28, data from the Energy Information Administration show.

Ethanol Imports

In November, the most recent month available, the country imported 33,000 barrels of ethanol a day, the highest amount since September 2008, according to data from the Energy Department’s statistical agency.

Brazil, where sugarcane is used to make the biofuel, is the biggest supplier of ethanol to the U.S., EIA data show.

Spot ethanol in Sao Paulo cost $2.29 a gallon in the week ended today, up from $2.21 the previous week, according to data compiled by Bloomberg, and 3.8 percent cheaper than the current futures price.

Ethanol industry advocates have criticized U.S. regulations that consider the Brazilian sugarcane-based variety superior to the domestic corn-made grade.

The value of Renewable Identification Numbers, known as RINs, for advanced forms of ethanol, which includes Brazilian grade, rose to 56.5 cents yesterday, or more than double the worth of the conventional sort, data compiled by Bloomberg show.

Crush Spread

Ethanol companies have battled more expensive production costs in the face of higher corn prices in the wake of a drought in the Midwest that battered crops.

Corn for March delivery dropped 6 cents, or 0.9 percent, to $6.9625 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, or the profit that can be made from turning a bushel of corn into ethanol, was minus 14 cents a gallon, up from minus 16 cents yesterday, the highest level since June.

“Margins have improved dramatically,” Blackford said. “They’re showing the weakness in production and they’re trying to respond to the plant closings.”

Poet LLC, the second-biggest U.S. ethanol producer, Valero Energy Corp., the third-largest, and Abengoa SA, are among companies that have idled operations.

Production in the week ended Feb. 1 rose 0.5 percent to 774,000 barrels a day from the previous week, the lowest level since the EIA began tracking weekly data for the biofuel in June 2010.

Spot prices for ethanol fell in most regional hubs, according to data compiled by Bloomberg.

Ethanol slipped 4 cents to $2.56 a gallon on the West Coast, the highest price in the nation. It fell 3 cents to $2.50 in New York, 1.13 cents to $2.40 in Chicago, and 1.5 cent to $2.445 on the Gulf Coast.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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