Citigroup projects weak ethanol prices for 2007, turnaround in 1Q of 2008

Citigroup projects that US ethanol prices will remain weak through the remainder of 2007 but improve in the first quarter of 2008. The company forecasted capacity to increase to 8.5 billion gallons in 2007, 12.7 billion in 2008 and 13.4 billion in 2009.

In the Citigroup report, analyst David Driscoll wrote “Although near term weakness in spot ethanol prices is likely to persist, we continue to hold a solid outlook for ethanol prices and margins in the long-term, with ethanol pricing likely to show improving trends as 2008 progresses as crude oil prices remain high with no signs of letting up. Ethanol prices relative to wholesale gasoline prices have come under pressure recently driven by the abundance of new capacity coming on line and the resulting temporary bottlenecks within the distribution system of ethanol to the wholesale gasoline producers.”

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