Strong recovery seen in world ethanol outlook

Posted 3 November 09

The economic outlook for the world bioethanol industry has improved considerably over the second half of 2009, according to Dr Christoph Berg, Managing Director of F.O. Licht.
Speaking at the opening of the the Licht World Ethanol conference in Paris today, Berg said there were various reasons for the more optimistic outlook at present, after a couple of years of relative gloom.

He noted that grain prices were sharply lower, which meant cheaper feedstocks; issues of overcapacity had been addressed to some extent in surplus producing regions; world crude oil and gasoline values had made a substantial recovery, making biofuels more competitive again; and adverse weather conditions in Brazil had greatly reduced the supply of cane ethanol from that country.

The global fuel ethanol supply estimate for late 2009 is 68.5 bln litres, while demand is seen at 68.2 bln litres, leaving a world surplus of just 0.3 bln litres. The reduced surplus compared with previous years is mainly due to continuing tightness in Brazilian supply.

For 2010, assuming the current economic recovery continues, global ethanol supply is forecast to reach 77.1 bln litres, with demand at 76.4 bln litres, leaving a larger surplus of 0.7 bln litres. This assumes a recovery in Brazilian fuel ethanol supplies, based upon improved weather conditions.

The key United States market remains strong, with margins slowly improving despite economic difficulties.

US fuel ethanol capacity is seen at 10.5 bln gallons this year, rising to 11.1 bln gallons in 2010, easily meeting the Renewable Fuel Standard. In all, 31 new plants have come onstream over the past year, despite some closures.

Nevertheless, significant challenges remain, said Berg, notably on sustainability issues such as carbon savings and indirect land use, which could be a make or break for the sector.

“These are highly political issues that must be handled carefully,” he emphasised.

Berg noted that global fuel ethanol capacity growth was slower this year than at any time over the past decade. This grew at just 4% in 2009, sharply down from 34% last year.
In contrast, world fuel ethanol demand remains more buoyant, but growth is still only estimated at 14% this year, down from 33% last year.

Despite this, price corrections have improved margins in the US and EU, with crude prices down 38% year-on-year; corn prices 42% lower; and wheat down 55% on an annual basis.

By contrast, sugar prices have surged by 68% year-on-year, making sugar production much more profitable than ethanol in key producer Brazil.

Another key trend identified by Berg was the growing synergy between the oil and fuel ethanol industries, with Valero’s successful entry into the US sector this year through several plant acquisitions, followed by Sunoco.

Other key global energy players such as BP, Shell and ExxonMobil are now following this lead, particularly in cellulosic biofuels.

Source: F.O. Licht’s World Ethanol & Biofuels Report

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