Ethanol weakened against gasoline on speculation that improved profitability of making the biofuel will boost output.
The price difference, or spread, widened 0.41 cent to 52.26 cents a gallon. Valero Energy Corp. (VLO:US), the third-biggest U.S. ethanol producer, said March 22 that it resumed output at a distillery in Linden, Indiana, and the most recent Energy Information Administration report showed production rose 1.5 percent to 809,000 barrels a day in the week ended March 15, the highest level since Feb. 22.
“Late last week, we started to see more producers offering product,” said Jim Damask, a manager at StarFuels Inc., a Jupiter, Florida-based brokerage. “We’re definitely seeing more product available. It’s still tight, but not as tight.”
Denatured ethanol for April delivery slipped 0.4 cent to $2.54 a gallon on the Chicago Board of Trade. Prices have risen 16 percent this year.
Gasoline futures for April delivery rose 0.1 cent to $3.0626 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.
Damask said ethanol companies are seeing better returns after profits were eroded as corn jumped following drought in the Midwest.
Corn for May delivery increased 7 cents, or 1 percent, to $7.3325 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 15 cents a gallon, down from minus 12 cents on March 22. The spread was more than twice as wide at the beginning of the year.
The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.
Output is down 16 percent from the record 963,000 barrels a day in December 2011, data from the Energy Department’s statistical agency show.
Stockpiles have fallen a record seven consecutive weeks to 18.5 million barrels, the lowest level since Nov. 23, according to the EIA report.
“They’re selling as much inventory as they can to get product out the door,” Damask said.
Ethanol-blended gasoline made up a record 95 percent of the total U.S. gasoline pool in the week ended March 15, the EIA report showed, up from 93 percent the previous week.
The U.S. imported 27,000 barrels of the fuel, the first time it’s made foreign purchases of ethanol in three weeks, EIA said.
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.
Spot ethanol in Sao Paulo fetched $2.38 a gallon last week, 10 percent below today’s futures price.
In cash market trading, ethanol fell 2.5 cents to $2.80 a gallon on the West Coast, the most expensive U.S. hub, while the biofuel was unchanged in New York at $2.66; in Chicago at $2.54 and in the U.S. Gulf at $2.60 a gallon, data compiled by Bloomberg show.
West Coast ethanol premium to the Gulf expanded 11 percent to 20 cents, while Chicago’s discount to New York was unchanged at 12 cents.
Ethanol Renewable Identification Numbers for the corn-based variety sank 7 cents, or 10 percent, to 60.5 cents, the lowest level since Feb. 28, 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, slumped 2.5 cents, or 3.3 percent, to 73 cents, the lowest level since March 1.
The credits each peaked at a record on March 8 at $1.06 for the conventional grain-based variety and $1.08 for the advanced.
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