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US ethanol industry set for 'rebalancing' after rough 2018: analyst

Houston — After a tumultuous 2018, the US ethanol industry has passed through its worst stretch in recent history and is set to rebalance, a Raymond James & Associates analyst said Tuesday.

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"I think we've seen the worst in the rear-view mirror," said Pavel Molchanov, senior vice president and equity research analyst, told attendees at the National Ethanol Conference in Orlando, Florida.

The previous year was a rough one for much of the ethanol industry in the US, large stocks and lower demand pushed prices down to level not seen in more than a decade. The industry was further hit by dwindling crush margins created by the falling ethanol prices overwhelming stable feedstock corn prices.

Negative crush margins forced many ethanol plants to shut down, a sign, Molchanov said, that the industry was adjusting to the new market realities.

"When [the crush margin] goes negative and you see plants mothballing or curtailing production left and right ... that is the sign of a rebalancing market," he said.

Prices for ethanol have rebounded in recent days. Platts Chicago benchmark Chicago Argo assessment reached $1.3445/gal on Monday, the highest level since August 21.

The crush margin also rose above zero Monday for the first time since October 10. On the demand side, the analyst pointed out that more than 30 jurisdiction have some sort of renewables fuels mandate that the US ethanol exports could help fulfill. He explicitly pointed to China, which has set a future goal of a 10% ethanol mandate in 2020.

"They're not going to be able to get there without ethanol from all of you," Molchanov said.

Molchanov said he expected that China-US trade relations would impove soon, a move that could re-open the Asian country to US ethanol imports. The Chinese substantially increased the tariff on US ethanol in early 2018, effectively closing the door to US-made biofuel.

-- Wesley Swift, wesley.swift@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com

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