Ethanol Slumps Against Gasoline on Speculation Imports to Climb

Source: By Mario Parker, Bloomberg • Posted: Monday, March 25, 2013

Ethanol slumped against gasoline on speculation that this month’s price increase will boost the appeal of Brazilian imports.

The price difference, or spread, expanded 1.69 cents to 51.85 cents a gallon. U.S. refiners imported the biofuel in the week ended March 15 for the first time since Feb. 22, a report from the Energy Information Administration showed.

“We’ve got some numbers now that make Brazil attractive,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “That puts a lid on it.”

Denatured ethanol for April delivery dropped 2.5 cents, or 1 percent, to $2.544 a gallon on the Chicago Board of Trade. Prices have gained 16 percent this year.

Gasoline futures for April delivery slipped 0.81 cent, or 0.3 percent, to $3.0625 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Brazil, the largest supplier of ethanol to the U.S., uses sugarcane to make the fuel, while U.S. distillers mostly manufacture the biofuel from corn.

The U.S. imported an average of 22,000 barrels a day in the first 11 weeks of 2013, according to the EIA, the Energy Department’s analytical arm. The average was less than 2,000 for the first 11 weeks of 2012.

Spot ethanol in Sao Paulo fetched $2.37 a gallon last week, 6.8 percent below today’s futures price.

Corn Slips

Corn for May delivery sank 6.75 cents, or 0.9 percent, to $7.2625 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 13 cents a gallon, down from minus 12 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Poor returns for the fuel, due to the higher corn prices, have led to the lowest season production levels in records going back to June 2010, data compiled by Bloomberg show.

Ethanol output last week averaged 809,000 barrels a day, down 9.4 percent from a year earlier and down 16 percent from the record 963,000 in December 2011, according to the EIA. Stockpiles of the biofuel have fallen a record seven consecutive weeks to 18.5 million barrels, the lowest level in more than four months, the EIA’s March 20 report showed.

Less Consumption

Ethanol prices have suffered as a result of lower gasoline consumption, shrinking the motor fuel pool in which it could be blended, Blackford said.

Gasoline demand, measured by deliveries to wholesalers, fell to 8.32 million barrels a day, the lowest level since Jan. 11, according to EIA data. Ethanol-blended gasoline last week accounted for a record 95 percent of total motor fuel consumption.

“These guys are blending and blending hard, which tells me they’ve had their fill,” Blackford said.

In cash market trading, ethanol on the West Coast, the most expensive hub in the U.S., tumbled 4.5 cents to $2.825 a gallon. In New York, the additive lost 4 cents to $2.66; in Chicago the biofuel slumped 3 cents to $2.54; and in the U.S. Gulf the renewable fuel decreased 3 cents to $2.60, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf narrowed to 22.5 cents, while Chicago’s discount to New York Harbor shrank to 12 cents.

RINs Decline

Ethanol Renewable Identification Numbers for the corn-based variety sank 3 cents, or 4.3 percent, to 67.5 cents, according to data compiled by Bloomberg. RINs are assigned to each gallon of fuel introduced the market, then submitted by refiners to the Environmental Protection Agency to show compliance with the law or traded.

Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 75.5 cents.

The certificates for each RIN peaked at a record on March 8 at $1.06 for the conventional grain-based variety and $1.08 for the advanced.

The price surge for RINs has been a source of contention between ethanol proponents and petroleum advocates, with U.S. Senator Ron Wyden, an Oregon Democrat, and chairman of the Senate’s Energy and Natural Resources Committee, asking the EPA today for data that would explain the recent volatility.