Valero Says Ethanol Slump May Offer Buying Opportunities

Source: By Mario Parker, Bloomberg • Posted: Tuesday, September 4, 2012

Valero Energy Corp. (VLO), the third- biggest U.S. ethanol producer, said the downturn in the industry may present an opportunity to buy distressed plants.

“We’re always exploring opportunities,” Bill Day, the company’s spokesman, said today in an interview at Valero’s Albion, Nebraska, ethanol plant.

In 2009, Valero paid $477 million for seven ethanol plants that had been owned by bankrupt producer VeraSun Energy Corp. and then purchased three other distilleries, including another bought out of bankruptcy from Renew Energy LLC.

Those plants are paid for and that allows the San Antonio- based company to explore acquiring other mills, Day said.

Denatured ethanol for September delivery rose 2.6 cents, or 1 percent, to $2.606 a gallon on the Chicago Board of Trade. Prices have gained 18 percent this year.

Corn for December delivery climbed 2.3 percent to $8.135 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol plants have struggled as the worst U.S. drought in 56 years scorches corn crops and boosts production costs for the biofuel.

Output was 819,000 barrels a day in the week ended Aug. 24, down 15 percent from a record 963,000 barrels a day in December, an Energy Department report showed today.

Restarts Possible

Valero idled the Albion operation and its Linden, Indiana, plant, in June, citing unprofitable margins to make the biofuel. Day said he expects those distilleries to resume production “relatively soon” as the corn harvest begins and corn prices subside.

“By the end of this year, that’s my expectation as of today,” Day said.

Producers are losing 40 cents on each gallon of ethanol manufactured, based on the September contracts for corn and the biofuel, data compiled by Bloomberg show.

Plants can ease those losses by selling dried distillers grains, a byproduct of ethanol production that can be fed to cattle and livestock.

Valero has boosted nameplate capacity at each of its ethanol plants to 120 million gallons a year from 110 million gallon when it initially bought them, Day said.