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UPDATE 1-Pacific Ethanol suspends construction of new plant

Mon Dec 10, 2007 9:50am EST

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(Recasts, adds background, details on company)

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NEW YORK, Dec 10 (Reuters) - Pacific Ethanol Inc (PEIX.O) said on Monday it has suspended construction of a new ethanol plant in California, the latest project to fall victim to the shrinking profit margins for the biofuel.

High corn costs and slumping gasoline prices have narrowed margins for ethanol over the past several months, forcing producers to mothball plants or cancel expansion plans.

Pacific Ethanol, the largest ethanol producer on the West Coast, said that despite the construction suspension, it was committed to completing the 50,000 gallon-per-year plant in Imperial Valley.

"However, given current ethanol market conditions, we feel it is prudent and strategic to suspend construction until the market improves," Chief Executive Neil Koehler said in a statement.

Biofuels peers VeraSun VSE.N, Glacial Lakes Energy and Chippewa Valley Ethanol Co have all suspended expansion projects in recent weeks.

Despite the suspension of the Imperial Valley project, Pacific Ethanol said it was sticking to its 2008 production target of 220 million gallons.

The company owns two other ethanol production plants and a 42 percent stake in a third, and has two other plants in development.

U.S. ethanol production is currently near 7 billion gallons per year and is expected to rise to more than 13 billion gallons in 2008. (Reporting by Matt Daily; Editing by Derek Caney)

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