Valero remained upbeat over ethanol production even as data
showed a surprise decline in US output of the biofuel last week, despite some
break from the low temperatures which have hurt plant efficiency.
US ethanol output fell by 5,000 barrels a day last week to
900,000 barrels a day - the lowest figure in three months, bar the slump two
weeks before when the so-called "polar vortex" accentuated the country's cold
snap, and ethanol plant's logistical and operational challenges.
The decline surprised some investors, including Jerrod Kitt
at Linn Group who said that "I was expecting last week to be a bigger week"
given slightly higher temperatures and margins which, while well down on levels
at the start of 2014, remain broadly positive.
"If you are selling into the truck market, you are looking
at breakeven to a small profit," Mr Kitt told Agrimoney.com.
"But if you have access to rail cars, you are looking at
$0.25-0.30 a gallon, high enough to incentivise production."
Low not reached yet
Mr Kitt attributed the lower-than-expected figure to a "lot
of little things nipping away at production", including some residual
logistical hiccups at plants given the squeeze on transport caused by cold
Rising natural gas prices were also a threat to
profitability, "perhaps more destructive to margins than prices of corn", the
main raw material for ethanol plants, and which has seen gentle appreciation so
far this month.
With the US weather turning colder this week, he forecast
figures released next Wednesday to show a further crop in ethanol production, "by
Besides potential logistical hiccups, "mechanical stuff"
such as ethanol production equipment "just does not function that well when it
is so cold, minus 40 degrees Fahrenheit wind chill".
'Exporting a lot'
However, Wednesday's US ethanol data, from the Energy
Information Administration, also showed a fall in stocks of the biofuel, down
86,000 barrels week on week to 16.93m barrels.
Valero Energy, one of the biggest US ethanol producers, with
10 plants and annual output capacity of 1.2bn gallons, highlighted the role of
exports in propping up demand.
"[National] production is hanging right around 900,000
barrels a day. I think demand is expected to average under the Renewable Fuel Standard
about 850,000 barrels a day.
"So we would normally be in the build situation but we are
exporting a lot of ethanol."
Indeed, European Union industry group ePure on Wednesday
lodged a complaint with the European Commission over a jump in ethanol imports
from Norway, thought to be of biofuel manufactured in the US.
While Norway is not a member of the union, it is a part of
the European Economic Area which enjoys favourable trade terms with EU nations,
including on ethanol.
Valero added that it had a "reasonable expectation" of
margins of $0.20-0.40 a gallon ahead, albeit lower than those of some $0.80 a
gallon it achieved in the October-to-December period.
The group reported record ethanol operating profits of $269m
for the quarter, up from $12m a year before, as it hiked production to a record
3.6m gallons a day to exploit strong margins, boosted by falling corn prices at
a time of resilient ethanol values.
Valero reported group earnings up 28% to $1.29bn, despite a
0.8% drop to $34.4bn in revenues.
Earnings per share, excluding one-off factors, came in at $1.78
a share, ahead of Wall Street forecasts of a $1.66-a-share result.
Valerio shares stood 2.3% higher at $51.36 in afternoon deals
in New York.