US corn ethanol refineries, facing a catastrophic loss of fuel demand because of coronavirus, are repurposing some products for hand sanitiser to restock supplies depleted by the outbreak.
Stay-at-home restrictions to control the pandemic have undercut US petrol consumption by almost two-thirds, or 6m barrels a day, RBC Capital Markets estimates. The decline will hit ethanol hard as it comprises about 10 per cent of most petrol sold in the US.
The looming demand shock is reverberating through the rural US Midwest, where four in 10 bushels of the corn crop is consumed by ethanol plants. Corn futures in Chicago have declined by 8 per cent since March 1 to below $3.50 a bushel.
“We’re losing money pretty fast right now,” said Daryl Haack, a farmer and board member of Little Sioux Corn Processors, an ethanol plant in north-west Iowa. His board planned to convene on Thursday to discuss whether to slow down output, he said.
The turmoil in the ethanol industry has exacerbated tensions with the oil industry, whose companies are also suffering from the effects of empty roads. The Trump administration is seeking $3bn from Congress to purchase crude oil for a government stockpile to assist petroleum producers.
The ethanol lobby, a potent political force in states such as Minnesota and Iowa, said it too deserved aid at a time of duress.
“We expect fairness and equity in how assistance is being provided to various US energy industries,” Geoff Cooper, chief executive of the Renewable Fuels Association, told reporters.
The price of wholesale petrol has plummeted and is now cheaper than ethanol, even though ethanol contains less energy per gallon. Gasoline blendstock was 24.4 cents a gallon in Chicago this week, according to the Oil Price Information Service, while ethanol was 86.5 cents a gallon.
The higher ethanol price will discourage fuel vendors from blending more than the 10 per cent that is necessary to meet government biofuel mandates and enhance octane levels in petrol.
Meanwhile, US stocks of ethanol sit close to an all-time high of 25m barrels (or 1bn gallons, the US biofuel industry’s preferred unit of volume).
Shares of listed ethanol refiners have been knocked, with Omaha-based Green Plains halving since March 1 and Archer Daniels Midland, an early biofuel champion that is now trying to split off its ethanol dry mills, dropping 14 per cent.
The coronavirus has triggered a threefold rise in US hand sanitiser sales from a year ago, according to Nielsen, leading to widespread shortages on store shelves. The World Health Organization has recommended either ethanol — grain alcohol — or isopropyl alcohol for use in handrubs.
However, increases in sanitiser sales are unlikely to offset the drop in volume to the motor fuel market. In 2019, US hand sanitiser sales totalled $193m, Nielsen said. Vehicles last year burnt 14.5bn gallons of fuel ethanol in the US last year worth about $20bn in the wholesale market.
“There are not enough hands to be sanitised to meet the US ethanol production capability,” said Bruce Rohwer, a corn farmer in O’Brien county, Iowa.
Last week the US Treasury department exempted fuel ethanol and spirits distillers from the need to obtain permits before selling into the sanitiser market, citing the urgency of the pandemic.
Chad Friese, chief executive of Chippewa Valley Ethanol in Minnesota, said the company was trying to supply the hand sanitiser industry but the product specifications were different.
“These ethanol fuel facilities are not really designed for this. Pharmaceutical grade is what you need because it’s coming in contact with humans,” he said.
Coronavirus business update
How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.