Ethanol Strengthens Versus Gasoline as Shutdowns May Cut Supply

Ethanol strengthened against gasoline on speculation that plant shutdowns will reduce supply and support prices.

The spread narrowed 2.26 cents to 62.42 cents a gallon as gasoline plunged. More than 1.4 billion of the country’s 14.7 billion gallons of ethanol production capacity have been suspended because of expensive manufacturing costs.

“Things have been getting rosier,” said Chris Wilson, an analyst at Atten Babler Risk Management LLC in Galena, Illinois. “We’re hearing chatter on the buy side that refiners are getting nervous about meeting their obligations.”

Denatured ethanol for March delivery decreased 1.5 cents, or 0.6 percent, to $2.397 a gallon on the Chicago Board of Trade. Prices have advanced 9.5 percent this year.

Gasoline for March delivery dropped 3.76 cents, or 1.2 percent, to $3.0212 a gallon on the New York Mercantile Exchange. The price is up 7.4 percent in 2013. The contract covers reformulated gasoline, which is blended with ethanol.

Ethanol companies may have signed contracts to deliver the fuel before they shut plants as a result of higher-than-normal corn prices caused by drought.

“They sold the ethanol already so they need to buy to fulfill commitments,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida.. “Sometimes if they shut down the plant, they figure it’s cheaper to buy the ethanol than to make it.”

Plants Shut

At least 19 plants have been idled since June because of production costs and a supply glut, according to the Renewable Fuels Association, a Washington-based trade group.

Corn for March delivery fell 6.75 cents to $7.0225 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Plant shutdowns are helping the corn crush spread, Wilson said. The spread, the difference between a gallon of ethanol and the amount of corn needed to make it, rose to minus 16 cents a gallon, the highest level since July.

Ethanol will consume about 42 percent of the 10.78 billion bushels of corn in this year’s harvest, the USDA said Feb. 8, up from 41 percent last year and 40 percent in 2011.

The plant closings have helped ease a glut of the fuel as stockpiles in the week ended Feb. 1 totaled 20 million barrels, 4.6 percent lower than a year earlier, according to the U.S. Energy Information Administration, the statistical agency of the Energy Department.

Production Higher

Production 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.

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool in the week ended Feb. 1, down from 91 percent a year ago, the EIA report showed. That week was the first since Sept. 28 that the U.S. didn’t import the biofuel, the agency said.

Spot ethanol in Sao Paulo, where ethanol is made from sugarcane, cost $2.29 a gallon in the week ended today, up from $2.21 a gallon the previous week, according to data compiled by Bloomberg. Ethanol industry proponents have derided U.S. regulations that consider the Brazilian sugarcane-based variety of the biofuel superior to the domestic corn-borne grade.

The value of Renewable Identification Numbers, known as RINs, climbed Feb. 8, for advanced forms of ethanol, which includes Brazilian, to 53.5 cents, from 51 cents a week earlier, data compiled by Bloomberg show.

RINs for the conventional sort of ethanol advanced 1.9 percent to 27 cents.

In cash market trading, ethanol was unchanged in the major regions at $2.53 a gallon in New York, $2.4113 in Chicago, $2.46 on the Gulf Coast and $2.60 on the West Coast, according to data compiled by Bloomberg.

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