Sector Snap: Ethanol Stocks Hit New Lows
Tuesday September 25, 2:40 pm ET
Ethanol Stocks Plummet Further Amid Continued Concern About Industry Outlook
NEW YORK (AP) -- Ethanol stocks fell Tuesday, with several hitting 52-week lows, as a Bear Stearns analyst rehashed concerns which promise to plague the industry in coming months.
Among stocks hitting their lowest point in a year were US BioEnergy Corp., which fell 73 cents, or 8.2 percent, to $8.20; Aventine Renewable Energy Holdings Inc., which fell 67 cents, or 6.1 percent, to $10.30; Pacific Ethanol Inc., which fell 44 cents, or 4.9 percent, to $8.76; and Verasun Energy Corp., which fell 50 cents, or 4.4 percent, to $10.75.
Bear Stearns analyst Ann Duignan noted supply and demand concerns facing the renewable fuel in a note Tuesday that outlined a conference call with several ethanol players.
A glut of product, limited blending capacity and high corn prices continue to overshadow recent enthusiasm about the industry. Duignan also noted the "grave concerns" about building plants for new ethanol companies over the next six to 18 months that Nick Bowdish, an executive with ethanol-plant builder Fagen Inc., cited during the call.
Lenders might not fund new businesses' plants because of higher building costs, uncertain return on investment and the fact that existing companies have claimed most of the desirable ethanol sites, Duignan said. Other potential sites have problems, such as poor soil and water quality.
A representative for CoBank, which provides loans to agriculture businesses, said the company "does not foresee financing significant new construction unless producers are experienced," according to Duignan.
Soleil Securities Group lowered estimates and price targets for several companies on Sept. 17, due to the near-term industry outlook.
On the brighter side, there is evidence that corn prices may fall further and that refiners plan to blend more ethanol in the near future.
Bear Stearns estimates demand of about 8 billion gallons of ethanol next year, which could bring corn prices down. That's because the estimate translates into about 3 billion bushels of corn, lower than the U.S. Department of Agriculture's estimate of 3.3 billion.
A Pacific Ethanol Inc. representative said during the conference call that blenders will likely increase the portion of ethanol they blend into gasoline ahead of California's mandatory hike starting in 2010. That's because a provision to boost the percentage from 5.7 percent to 10 percent ahead of time may be approved by the end of the year.
A representative for Marathon Oil Corp. said during the conference call that the refiner expects to blend 650 million gallons of ethanol this year and 1.2 billion gallons in 2008.
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