US ethanol plants idled as demand collapses

US ethanol producers are reducing output and idling plants, as margins tumble with prices amid coronavirus-related quarantine protocols that have slashed motor fuel demand.

Annual US ethanol output capacity has dropped by more than 3bn USG over the past month as producers reduce operations and idle plants, according to trade group Renewable Fuels Association (RFA). That is about 20pc of the roughly 15bn USG blended into the gasoline pool each year. About 30-40 plants are fully idle and another 40-50 have reduced output, RFA chief executive Geoff Cooper said.

Domestic ethanol production slid to a 22-week low in the week ended 20 March, while blending demand dropped to the lowest in six weeks, according to the latest Energy Information Administration data.

Margins on making ethanol from corn have been negative since mid-December as production outpaced demand, but the losses more than tripled this month. Margins fell yesterday to -77¢/bushel, from -24¢/bushel on 2 March, as plummeting crude prices outpaced lower corn futures, while spot ethanol prices hit record lows.

Prices for prompt in-tank transfers at Kinder Morgan's Argo terminal near Chicago have fallen by 34¢/USG, or 27pc, to 93.85¢/USG since early March, when the coronavirus pandemic began to cut fuel demand. US implied gasoline demand last week sank by nearly 9pc, according to the EIA.

Adding to the pressure on fuel prices this month, crude production surged after Opec+ failed to reach an agreement.

The deteriorating economic conditions led agricultural conglomerate The Andersons to idle a plant in Colwich, Kanasas, and shut four jointly owned plants for maintenance as part of a plan to reduce April output to half of capacity. Pacific Ethanol plans to cut production by at least 60pc by the end of this month. And Poet, one of the largest producers of ethanol in the US, is halting corn purchases at some facilities.

Some ethanol plants are shifting operations to produce high-grade ethanol for hand sanitizer and other cleaning products in recent weeks, according to RFA's Cooper. They include Absolute Energy (St. Ansgar, Iowa); Aemetis (Keyes, California); Chippewa Valley Ethanol Company (Benson, Minnesota); Grain Processing Corp. (Muscatine, Iowa, and Washington, Indiana); and Pacific Ethanol (Pekin, Illinois).

Even before the coronavirus outbreak and collapse of the Opec+ agreement, the ethanol sector was struggling from the US-China trade dispute that reduced ethanol exports and from federal waivers that exempted some small refineries from requirements for blending ethanol into gasoline.

A recent 10th Circuit court decision to reduce the number of refineries eligible for exemptions is a silver lining for the industry, as the exemptions have eroded ethanol demand since 2016.

By Jacqueline Reigle