Keeping it clean: U.S. ethanol producers invest in sanitizer for long haul
By Stephanie Kelly
NEW YORK (Reuters) - The Red River biorefinery in Grand Forks, North Dakota started operations in April. This was arguably the worst time to start an ethanol plant as the coronavirus pandemic cut fuel needs.
Instead of shutting down like many ethanol plants, the company focused from making ethanol to making high quality alcohol for hand sanitizer, where demand soared during the pandemic as Americans protected themselves against the coronavirus.
Red River and several other companies view the hand sanitizer market today as more than a temporary ointment for weak fuel demand and are making ongoing investments in producing high quality alcohol that meets standards for disinfectant manufacturing.
In the past few months, Pacific Ethanol <PEIX.O>, Green Plains <GPRE.O> and Highwater Ethanol <HEOL.PK> have announced that they will be increasing their capacity for high-quality alcohol.
"When we first went live, we just wanted to be in the fuel market," said Red River President Keshav Rajpal. "Supply and demand have shifted sharply at the moment. In this case, the margins in our case are significantly higher compared to ethanol."
Globally, the hand sanitiser market was worth $ 2.7 billion in 2019, with North America accounting for a third of the market's revenue share, according to Grand View Research, a consulting firm.
The numerous announcements suggest that some manufacturers are seeing a higher return on hand hygiene than fuel for transportation due to the pandemic. Corn-based fuel ethanol demand tends to closely align with gasoline consumption as US law requires it to be blended into fuel.
According to the EIA, US ethanol production capacity was 17.4 billion gallons per year in January, up from 16.9 billion gallons per year in 2019.
According to the Energy Information Administration, nationwide ethanol production has recovered since the spring, reaching 923,000 barrels per day from 537,000 bpd in April. That was still 4% less than at the same time last year.
Red River is expanding its production of USP alcohol used in the disinfectant. The company, which produced nearly a million gallons of high-quality ethanol per month, added tank storage and loading equipment.
The ethanol margins in the US corn belt <ETH-CB-REF> have recovered from the low of -22 cents in April to 9 cents per gallon, but according to Refinitiv Eikon they are still at the previous year's level.
Sacramento-based Pacific reported strong second-quarter results due to favorable margins for high-quality alcohol, said Michael Kandris, Pacific co-president, in an August call for earnings.
High-quality alcohol is typically sold at fixed prices and quantities with longer contractual commitments than ethanol, Kandris said, which improves margins.
(Reporting by Stephanie Kelly; Editing by David Gregorio)
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