Ethanol imports cut profit hopes for Ensus owner

CropEnergies, the new owner of the Ensus ethanol plant, cut its profit forecast and cautioned of "pressure" on its performance next year too, blaming competition from imports which are "eluding" duty rules.

Shares in the German-based group tumbled 12.8% to E6.05 in Frankfurt after it warned of an even deeper drop in operating profits in the year to February 2014 than it had expected.

CropEnergies - which had previously expected operating profits to fall to E40m-50m from the previous year's E87m, hit by a less favourable hedging strategy and the costs of commissioning the UK-based Ensus operation - downgraded its forecast to E33m-43m.

The cut reflected the hit to ethanol prices from imports which have continued to dog the industry, despite European Union efforts to close off loopholes which allowed some bioethanol blends to be imported at low tariffs.

'Open for interpretation'

"Since September 2013, bioethanol prices have been under pressure following increased competition mainly from imports eluding the current tariff regulations," CropEnergies said.

The European renewable fuels group, ePURE, "is currently examining the legality of these imports", the group said, adding that it expects "the current developments on the European bioethanol market to also put pressure on the operating profit of the financial year 2014-15".

While CropEnergies failed to specify the nature of the import concerns, some commentators have been voicing caution that the EU has not fully closed the industry loopholes.

A US Department of Agriculture report in August cautioned of industry concerns of "uncertain" language in the EU regulation, which is in part "not explicit and is open for interpretation".

"Exporters could possibly avoid the higher tariff rate with a blend of just below 70% bioethanol.

"Another option could be finished blends, E5 or E10," blends of 5% and 10% respectively with gasoline, "with a tariff of 4.7%".

Deals in the pipeline?

CropEnergies hinted at further acquisition ambitions besides the downturn in its performance, saying that the ethanol market weakness would "accelerate" European bioethanol industry consolidation "which was initiated by CropEnergies".

The consolidation of the bioethanol industry in Europe, which was initiated by CropEnergies, will accelerate due to the current price levels.

"In the medium term, the expected consolidation of the industry will offer further growth possibilities to CropEnergies, which already is one of the leading European producers of bioethanol with above-average financial and cash flow strength," the group said.

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