Expert Predicts Shakeout in Ethanol Industry

John Davis

Change is on the way for the ethanol industry… and it could be quite dramatic. That word comes from a leading biofuels venture capitalist, and this story in the Des Moines Register says it could lead to more plants being owned by fewer and bigger investors:

bioscience.jpgSano Shimoda of BioScience Securities Inc. in Venice, Calif., said at the first Renewable on Parade conference that investors who put their money into ethanol five years ago are smiling now because they profited from a surge in ethanol demand that led to skyrocketing high prices.

Ethanol plants that survive the coming shakeout will have to be low-cost producers that are vertically integrated to take advantage of access to raw materials, Shimoda said.

He said biofuels such as ethanol need to build their future on being market-driven industries that can survive without subsidies or protectionist tariffs.

“Bioethanol will be sustainable only if costs are driven to levels that support market-driven demand without the need for long-term subsidies,” Shimoda said. “All I’m saying is that you have to get costs down. If not, you’re not viable.”

Shimoda predicts squeezed profit margins will lead to a market consolidation, and most single plants won’t survive except for the ones that are low-cost producers. He adds the ethanol production costs must be targeted to compete if oil prices drop to $25 a barrell… that way, when they stay higher, the plants will still be profitable.

Ethanol, News