Ethanol investment faces bumpy ride
LONDON (Reuters) - Investment opportunities in green fuel ethanol are clouded by falling prices, rising costs and excess capacity, but prospects will improve on expectations for high oil prices, consultant Jonathan Kingsman said on Thursday.
Lausanne-based Kingsman said the media had turned against biofuel investments because of a growing perception that increasing use of staple foodstuffs as feedstock for green fuel was contributing towards higher food prices.
"It's a difficult investment environment for those who want to invest in biofuels," Kingsman told a conference.
In an interview with Reuters, Kingsman said the longer term outlook for investments in ethanol was much brighter as crude oil prices were expected to remain high due to tight supplies and rising demand.
For the near-term, Kingsman said investments were hampered by falling ethanol prices, rising prices of ethanol feedstock corn, and excessive capacity coming onstream in the United States, the world's leading ethanol producer.
Capacity was also racing ahead in Brazil, the world's top sugar producer and exporter.
In Brazil, the outlook for ethanol investment was more encouraging as domestic demand for ethanol to be used in flex-fuel cars is growing, he said.
"Flex-fuel cars are driving ethanol demand forecasts," Kingsman said.
Kingsman forecast that 57-58 percent of centre/south Brazilian sugarcane output in 2008/09 would be allocated to manufacture ethanol biofuel, up from around 55 percent in 2007/08 and 49 percent in 2006/07.
He predicted centre/south Brazilian cane output would rise to 460 million tonnes in 2008/09 from some 420 million in 2007/08.
He added that some international commodity trade houses, which he declined to identify, had privately forecast that centre/south Brazilian cane output could rise to 480-485 million tonnes in 2008/09.
The London-based International Sugar Organization (ISO) estimates centre/south Brazilian cane output for 2007/08 at around 415 million tonnes, ISO economist Leonardo Bichara Rocha said.
