Ethanol Strengthens Against Gasoline on Signs of Lower Output

Ethanol strengthened against gasoline on speculation that plant closings and lower output will help alleviate a glut.

The biofuel’s discount to gasoline narrowed 0.76 cent a day after Aemetis Inc., a U.S. ethanol manufacturer, said it idled its plant in Keyes, California, absent a profit to make the additive. A Jan. 16 Energy Information Administration report showed production sank to 784,000 barrels a day last week, the lowest level since the Energy Department’s analytical agency began reporting data in June 2010.

“There’s still plenty of barrels out there but if we stay sub-800,000 barrels we’ll clean that up very quickly,” said Ian Jackson, a trader at SCB & Associates LLC in Chicago.

The grain-based additive was 42.18 cents cheaper than gasoline, based on prompt-month contracts for both commodities.

Denatured ethanol for February delivery advanced 3.6 cents, or 1.5 percent, to $2.375 a gallon on the Chicago Board of Trade, the highest settlement since Dec. 7. Prices have advanced 12 percent in the past year.

Gasoline for February delivery climbed 2.84 cents, or 1 percent, to $2.7968 a gallon on the New York Mercantile Exchange.

In cash market trading, ethanol in New York gained 3 cents, or 1.2 percent, to $2.445 a gallon and in Chicago the biofuel increased 3 cents, or 1.3 percent, to $2.345, data compiled by Bloomberg show. Ethanol in the U.S. Gulf gained 1 cent, or 0.4 percent, to $2.395 a gallon and on the West Coast the additive jumped 0.5 cent to $2.465.

Corn Gains

Corn for March delivery rose 3 cents, or 0.4 percent, to $7.275 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts for corn and ethanol, producers are losing 26 cents on each gallon of the fuel made, down from 27 cents yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Jackson said the losses and potential plant closings raised optimism that supply and demand will become balanced this year.

Abengoa SA, a Spanish engineering and renewable energy company, said yesterday it idled output at ethanol mills in York and Ravenna, Nebraska, until market conditions improve.

Before it's here, it's on the Bloomberg Terminal.