(Updates to add comments from Pacific Ethanol CEO, Aventine Renewable spokesman, Renewable Fuels Association president; updates stock movement.)
By Ed Welsch
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- VeraSun Energy Co.'s (VSE) decision to delay the openings of two of the largest U.S. ethanol plants reflects the immense pressure ethanol producers are under as their margins are squeezed by high corn and natural gas prices.
Heartland Ethanol followed suit, dropping plans to build seven ethanol plants in Illinois, according to The News Gazette of Champaign. Mike Craig, spokesman for Knoxville-based Heartland, said the high cost of corn and trouble getting financing in a tight credit market are behind the decision, the paper reported.
Delaying the opening of nearly completed ethanol plants is unprecedented, analysts at Credit Suisse said Wednesday. They expect more plant closings as the industry struggles with lower profit into next year. That could eventually mean higher energy prices for consumers, though it also could help sustain ethanol producers that make it through 2008.
Shares of most ethanol producers were down in recent trading Wednesday, with VeraSun Energy down 7.4% to $3.90, Pacific Ethanol (NASDAQ-NMS:PEIX) (PEIX) down 10.8% to $2.22 each, Aventine Renewable Energy Holdings (NYSE:AVR) (AVR) down 9% at $4.17 and BioFuel Energy Corp. (NASDAQ-NMS:BIOF) (BIOF) down 4.6% at $2.93.
VeraSun delayed the opening of ethanol plants in Welcome, Minn., and Hartley, Iowa, because of the unfavorable spread between corn and ethanol prices, spokesman Mike Lockrem said. He said the company remains optimistic that it will be able to open the plants if market conditions for ethanol production improve.
The Credit Suisse analysts said they don't expect the fundamentals for ethanol to improve until next year, and that ethanol producers face a difficult economic situation until then.
"We expect further plant delays and curtailments due to a very challenging margin outlook," the Credit Suisse analysts led by Mark Flannery said. The analysts lowered their year-end capacity forecast to 9.5 billion gallons from 10 billion.
Aventine Renewable spokesman Les Nelson disagreed with the Credit Suisse analysts, and said the margins of ethanol companies were still healthy. He said the cash prices for corn remained about 50 cents per bushel cheaper than July corn futures, which he said were pushed up by speculators.
