US: January 16, 2008


CHICAGO - US corn-based ethanol expansion is headed for a cooling-off period over the next 18 months until demand catches up with supply, said a senior executive of leading agricultural research firm Informa Economics on Monday.


"Once you get past this current spurt, we are going to see a little bit of a leveling-off, a much lower rate of increase in capacity expansion in the United States," Scott Richman, senior vice president of Memphis-based Informa, told the Reuters Global Agricultural and Biofuel Summit.

Over the past two years the US ethanol industry has grown dramatically amid an influx of Wall Street capital to build refineries, meeting government mandates to wean Americans from foreign oil and the demand from the petroleum industry for a clean-burning fuel additive.

US ethanol capacity rose to 7.6 billion gallons in 2007, up 41 percent from the year before. More plants are expected to come on line, representing an additional capacity of up to 5.7 billion gallons, according to the Renewable Fuels Association, an industry trade group.

The net effect has been a build-up of ethanol inventory. Additionally, ethanol profit margins have fallen, depressed by historically high corn prices, now above US$5 a bushel on the Chicago Board of Trade, and only a modest rise in ethanol prices over the past couple months to US$2-$2.50 a gallon.

"I think it's going to return to a more normal type of environment where supply and demand are basically growing apace ... it's just we probably have another 18 months or so of additional supply and trying to open up new demand centers," Richman said.

The new US Energy Bill, calling for biofuel production to jump five-fold to 36 billion gallons by 2022, should drive demand over the long haul. There also is hope that new markets developing in the US Southeast will spur bigger sales in the years ahead.

"The industry will be built and the financing won't be flowing quite as quickly as it has been these last few years. I think you're going to see the growth in ethanol consumption and the growth in ethanol production be more in line," Richman said. (For summit blog: http://summitnotebook.reuters.com/) (Reporting by Christine Stebbins, editing by Matthew Lewis)


Story by Christine Stebbins


REUTERS NEWS SERVICE