As U.S. fuel demand dries up, more ethanol producers turn to hand sanitizer

NEW YORK (Reuters) - An increasing number of U.S. ethanol plants trying to survive a drop in fuel demand brought on by the coronavirus outbreak have turned to making a product for which demand is soaring: hand sanitizer.

At least two dozen producers of the corn-based fuel have switched some of their output to produce a high grade of alcohol required for hand sanitizer since late March, the head of the Renewable Fuels Association said on Monday.

“I don’t think most producers are going to offset their losses by ramping up hand sanitizer production, but it certainly does give our industry a way to contribute,” RFA’s chief executive, Geoff Cooper, told reporters.

Cooper said that tanking fuel demand, as people are forced to stay at home, has halved the U.S. ethanol industry’s production capacity. Of the nation’s 200 ethanol plants, 73 plants are idled while 71 have reduced rates, he said.

Ethanol is used as an additive in U.S. gasoline.

Demand for hand sanitizer has surged as governments and health agencies advise people to keep their hands clean to curb the spread of the novel coronavirus, which has now killed more than 165,000 people around the world.

Refining margins to produce ethanol in the Corn Belt ETH-CB-REF are just above breakeven, at 3 cents a gallon.

Pacific Ethanol, the largest producer in the western United States, has idled over 50% of capacity and laid off employees, Chief Executive Neil Koehler said Monday.

The RFA estimates that the number of jobs the industry supports will fall by a fifth.

Kentucky-based Commonwealth Agri-Energy is partnering with bourbon distillers in the state to make hand sanitizer, said Mick Henderson, general manager. Even so, that business pales in comparison to profits the company would normally see.

“I have a 50-million-gallon-a-year plant for fuel ethanol,” Henderson said. “If I get 10% of that for hand sanitizer, that would be a lot.”

In Nebraska, Green Plains and KAAPA Ethanol said they are donating the fuel to a group of organizations that are working toward producing hand sanitizer.

Biofuel advocates are assessing possible pathways to recovery after a $19 billion U.S. Agriculture Department aid program failed to extend assistance to the industry on Friday.

Trade groups and producers are also pushing for the Environmental Protection Agency to end a program that exempts oil refiners from biofuel blending obligations. The EPA has not yet given guidance on whether it will do so.

Reporting by Stephanie Kelly; Editing by Leslie Adler