Associated Press
06-18-07
Analysts warn of possible oversupply of ethanol
BY STEVE KARNOWSKI
Thanks to fast expansion and sticky distribution issues, some Wall Street and
university analysts are predicting the ethanol boom is about to stumble on a
supply glut and shrinking profit margins.
Geoff Cooper, who runs ethanol programs for the National Corn Growers
Association, said the alternative fuel industry expects a temporary oversupply for
several months, though he hesitated to call it a glut.
Lehman Brothers analysts are estimating the surplus at about 1 million gallons
per day starting in the second half of 2007.
The firm's recent report attributed part of that to the ethanol plant construction
boom but said transportation bottlenecks are a bigger problem. Ethanol is
produced mainly in the Midwest and has to be moved to coastal markets by train
or truck since pipelines don't exist, said Michael Waldron, a coauthor of the
report.
"The supply is coming online and there isn't really an efficient way to get it to the
demand centers on the East and West coasts," he said.
Researchers at Iowa State University also raised concerns about profit margins
being battered by corn prices that, driven by ethanol, have risen from less than
$3 per bushel last summer to more than $4 per bushel lately.
They say that will make it difficult for ethanol plants to make money. And as the
ethanol supply grows, they predict, ethanol prices will drop relative to gasoline
unless there's a change in government policy to encourage more demand for it.