UPDATE 1-US ethanol output slumps as losses spur plant closings

Wed Jan 30, 2013 1:45pm EST

* Thirty-six U.S. ethanol plants idled as of Tuesday
    * High-priced corn, drop in gasoline use hits production
    * Stocks of ethanol up 2.3 pct to 20.54 mln bbls

 (Adds details, background, comments)
    By Carey Gillam
    Jan 30 (Reuters) - U.S. ethanol production has fallen to its
lowest level since the government started collecting data more
than two years ago, as  poor demand and the high cost of corn
prompt a series of plant closings. 
    Some signs are pointing to an improving market, but more
closings could be coming without a reversal of the conditions
currently hurting production and usage, some industry experts
warned.
    "Gasoline demand is down and that is the big driver," said
R.J. O'Brien & Associates ethanol trader Julie Ward. "Without
gasoline, you don't have anything to put ethanol in. We've hit a
blend wall."
    Competition from imported South American ethanol is a factor
as well, analysts said.
    But one of the most critical pressure points for producers
is the ongoing high cost of corn, said Neill McKinstray,
president of the ethanol group for The Andersons Inc.
    The Andersons, a top U.S. grain handler and owner and/or
operator of ethanol plants with 330 million gallons of total
capacity
    Corn has been hard to come by and is high priced after 2012
production dropped 13 percent to 10.8 billion bushels due to the
devastating drought that gripped the U.S. Midwest. Some plants
have not been able to source enough affordable corn to continue
to operate.
    "Corn prices are a big factor," said McKinstray. "Until we
produce a new and abundant crop of corn, we see challenges
continuing. Unfortunately, with at least eight months to go
before our next harvest, I think additional plant closures are
likely."
    Margins have been well into the red though recently have
showed signs of strengthening and in some areas of the country
are nearing break-even. But many producers have already been hit
hard financially.
    "There has been a lot of cash burned at these plants in the
last six months," Ward said.
    Ethanol output fell to 770,0000 barrels per day in the week
ended Jan. 25, down 22,000 barrels from the previous week, the
Energy Information Administration said. That compares to output
of 939,000 bpd a year ago and 908,000 two years ago.
    Meanwhile, stockpiles rose 2.3 percent to 20.54 million
barrels in the most recent week.
   
    The decline in production comes as plant closings and
slowdowns have been accelerating. Of the 211 ethanol refineries
in the country, 36 were idle as of Tuesday, according to the
Renewable Fuels Association. That represents about 15 percent of
the roughly 14.7 billion gallons of capacity, according to the
trade organization.
    On Tuesday privately held White Energy said a 120
million-gallon-capacity ethanol plant in Plainview, Texas, idle
since Jan. 7, will remain closed through March and possibly
until the last quarter of 2013 due to poor profit margins. Also
this week, independent oil refiner Valero Energy Corp 
said it idled three of its 10 ethanol production facilities
during the final three months of 2012. 
    Last week, Abengoa Bioenergy said it would
temporarily halt ethanol production at two plants in Nebraska
because of the unfavorable market conditions.   
And POET, another U.S. ethanol producer, said last week that it
would temporarily suspend operations at its Macon, Missouri,
plant.
   There are some hopeful signs for ethanol producers. Imports 
were down to 9,000 bpd in the latest reporting week from 67,000
bpd a week earlier. This decline comes as U.S. ethanol industry
players complain about federal provisions aimed at boosting use
of non-corn alternative fuels, which they say helps boost demand
for Brazilian sugarcane-based ethanol. 
    As well, blender demand bumped up about 1 pct, though still
is well below the trend line and off track from a federal
ethanol blending mandate of 13.8 billion gallons for 2013.
    And, RIN values have been surging lately, up roughly 10-fold
since last summer. RINs stands for Renewable Identification
Number and correspond to gallons of renewable fuel to meet
blending mandates.
    The advance in the thinly traded market for RINs primarily
impacts the economics of the blenders and has yet to improve
physical pricing much, said Linn Group analyst Jerrod Kitt.
    But given overall market moves, Kitt said he believes output
levels might be at a "seasonal bottom." 
    "The market is attempting to stimulate more blending
demand," Kitt said. "It's all about meeting the mandate, and at
the moment, ethanol production is running far shy of what's
mandated for 2013."

 (Reporting by Carey Gillam; editing by John Wallace and Bob
Burgdorfer)
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