Sector Wrap: Ethanol Stocks Keep Sliding
Tuesday October 2, 4:53 pm ET
Ethanol Stocks Sink As Weakening Fundamentals Push Shares Down
NEW YORK (AP) -- Ethanol stocks continued their downward trend on Tuesday, as companies discussed the industry's weak outlook at an investors conference.
Shares of Aventine Renewable Energy Holdings Inc. fell hardest, with a decline of 93 cents, or 8.7 percent, to close at $9.75. Aventine's shares have dropped about 60 percent since the start of this year.
Many ethanol stocks have come under pressure recently amid supply and demand issues that have lowered ethanol prices. Ethanol producers stepped up capacity despite an oversupply, while refiners failed to add enough capacity to blend the product with gasoline. As a result, prices for corn -- ethanol's main ingredient -- have risen as ethanol prices have plummeted.
"When the stock prices are low you have to be out in front of investors telling your story," Ajay Sabherwal, Aventine's chief financial officer, told investors at Citi's "Ethanol on the Cob II" biofuels conference.
Sabherwal blamed recent difficulties on refiners and on current economics that don't favor the ethanol industry.
"We don't have $65 or $70 oil, we have $80 oil, yet we have a price of ethanol of $1.50," said Sabherwal. "Basically the 50-cent tax credit is being taken by the blender and on top of that the blender is getting another 40- or 45-cent discount."
The result, he said is a "lopsided" equation, where ethanol producers take on marginal costs. "There are no incentives to put up new ethanol plants, with the economics being relatively poor right now," said Sabherwal.
Calyon Securities slightly lowered its price target and estimates for VeraSun Energy Corp. on Tuesday after the company said Monday it would halt construction on a biorefinery.
Analyst Kelly Dougherty said VeraSun's move is "likely to spark further industry rationalization," but she maintained a "Buy" rating for the company.
VeraSun shares fell 59 cents, or 5.4 percent, to close at $10.30.
Among other decliners were Biofuels Energy Corp., which fell 36 cents, or 6.5 percent, to $5.17; Pacific Ethanol Inc., which lost 31 cents, or 3.4 percent, to end at $8.90; and US BioEnergy Corp., which gave up 8 cents to close at $7.40.
Archer Daniels Midland Co.'s CFO said Tuesday the company would not cut its seed processing capacity due to falling biofuel demand. ADM shares rose 7 cents to close at $33.24.
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