NEW ORLEANS (Reuters) - U.S. ethanol producers and traders are bracing for a bleak spring as sinking prices and record inventories punish margins, forcing some companies to suspend loss-making output and extend maintenance, executives said at a conference on Wednesday.
One of the only glimmers of hope is the export market, but conditions will get worse before the summer driving season starts, boosting demand and helping to erode stockpiles and bolster razor-thin margins.
“We need the exports to balance this market,” said Mark Fisler, managing director at Ocean Park Advisors, said on Wednesday at the Renewable Fuels Association conference.
He noted that if ethanol producers keep pumping out fuel at the same levels seen in January, production will swell to over 15 billion gallons, about 800 million gallons more than needed.
One trader said the market’s “in trouble” without demand from China.
Stocks are likely to hit fresh records, executives said, pushing margins to, or below, break-even costs for many producers and forcing some of the majors such as Green Plains Inc and Archer Daniels Midland Co to slow output.
Inventories reached a record 23 million barrels in the week ended Feb. 5, but could go even higher before plants began to shut down in late March for maintenance and warm weather draw drivers back to the road.
A second trader said conditions are worse than last year and predicted producers will extend maintenance this year in order to slow down fresh supplies.
Ethanol prices have been under pressure from a plunge in crude oil and gasoline prices, while corn prices remain relatively stable.
The biofuel has been trading a rare premium to gasoline for months, sparking worry that fuel companies will only use the volumes of ethanol and other renewable fuels required to meet government mandates.
One producer said that domestic sales of E85, a fuel comprised mostly of ethanol, have slowed due to cheap gas prices.
That puts increasing pressure on producers to move excess supplies offshore. The U.S. Department of Commerce will lead a trade mission to Mexico in a few months. Demand has also been growing in countries in Asia, like the Philippines.
Traders said exports to China jumped last month, but since then, business has slowed. Hopes of a jump in exports is “grasping at straws,” said an analyst.
Reporting by Chris Prentice; Editing by Alan Crosby