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Ethanol Narrows Discount as Gasoline Drops to Three-Month Low

April 23 (Bloomberg) -- Ethanol’s discount to gasoline narrowed as the motor fuel plunged to a three-month low and with production of the biofuel below seasonal averages.

The spread tightened 2.14 cents to 28.9 cents a gallon as gasoline tumbled after a report showed China’s manufacturing expanding at a slower pace and as Goldman Sachs Group Inc. cut its outlook for Brent crude oil prices. Ethanol production has averaged 804,000 barrels a day this year, down 12 percent from 2012 levels. Renewable Identification Numbers plunged.

“There’s great potential margins implied, but I guess we’re looking at where current production levels go from here,” said Rich Nelson, chief strategist at Allendale Inc. in McHenry, Illinois. “I don’t see a big increase. This past stretch of losses for these ethanol plants burned them pretty badly.”

Denatured ethanol for May delivery dropped 2.9 cents, or 1.2 percent, to $2.43 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for May delivery declined 5.04 cents, or 1.8 percent, to $2.719 a gallon on the New York Mercantile Exchange, the lowest level since Jan. 15. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up about 94 percent of the total U.S. gasoline pool in the week ended April 12, down from a record 96 percent the previous week, according to data from the Energy Information Administration.

Output Idled

As many as 20 plants idled output after drought in the Midwest ravaged corn crops, driving up prices and wiping out profits to make ethanol, according to data from the Renewable Fuels Association in Washington.

Valero Energy Corp., Abengoa SA and Poet LLC are among companies that have resumed output at distilleries that were temporarily shut because of higher corn prices.

Corn for May delivery fell 7.25 cents, or 1.1 percent, to $6.385 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread was 11 cents a gallon, unchanged from yesterday. That compares to minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Nelson said most plants will be cautious about increasing output or resuming operations because returns for making the fuel were absent for a long period of time.

The corn crush has been positive for all except for one day in April, data compiled by Bloomberg show.

RINs Decline

Corn-based ethanol RINs fell 1.5 percent to 65.5 cents, the lowest level since March 25, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, decreased 6.1 percent to 76.5 cents, the cheapest in three weeks.

The U.S. government uses RINS to track compliance with mandates to use ethanol. Refiners can trade RINs, which are attached to every gallon of ethanol for submission to the Environmental Protection Agency.

In cash market trading, ethanol increased 3 cents to $2.66 a gallon in New York, data compiled by Bloomberg show. The additive fell 2.5 cents to $2.475 in Chicago, dropped 1.5 cents to $2.545 on the Gulf Coast and gained 1.5 cents to $2.715 on the West Coast.

West Coast ethanol’s premium to the U.S. Gulf increased 3 cents to 17 cents, while Chicago’s discount to New York Harbor expanded 5.5 cents to 18.5 cents, the most since Dec. 9, 2011.

Ethanol stockpiles dropped 1.6 percent to 17.5 million barrels in the week ended April 12, the Energy Information Administration reported April 17. The U.S. hasn’t had any imports of the fuel since March 29, according to data from the EIA, the Energy Department’s statistical unit.

The agency is set to release the latest figures at 10:30 a.m. tomorrow in Washington.

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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