Sector Snap: Pacif. Ethanol leads sector

Sector Snap: Pacif. Ethanol leads sector

	Published : Tue, 20 Nov 2007 17:48 By : Agencies Print this Story

NEW YORK (AP) - Pacific Ethanol Inc. led ethanol stock gains Tuesday as investors saw a buying opportunity after a sharp sell-off the previous day.

Its stock rose 34 cents, or 7.7 percent, to $4.77 in morning trading. The company's stock had hit new lows on Monday, falling 22.3 percent to close at $4.43. Pacific Ethanol posted a surprise third-quarter loss of 15 cents per share on Friday due to inventory write-downs as the price of ethanol fell precipitously.

Other stocks were supported by a report that ethanol prices and profit margins had risen, although analysts remained cautious about the outlook for next year. The sector's profitability has been hurt as rapid expansion caused a sharp decline in ethanol prices and corn prices rose dramatically amid surging demand.

Ethanol gross margins rose 9 cents over two weeks to 86 cents per gallon on Friday as ethanol spot and futures prices rose, according to Banc of America analyst Eric Brown. However, Brown noted that corn prices also rose and said he expects new crop futures 'well above' $4 per bushel heading into the spring. At the same time, ethanol production capacity will be at 8.2 billion gallons per year at the end of 2007, up from 5.5 billion at the end of 2006.

'We believe that new capacity, combined with higher corn prices, will continue to pressure ethanol production margins,' Brown said in a note Tuesday.

Morgan Stanley analyst David Wilson said news of southeastern states opening up to ethanol-blending measures has supported ethanol prices and stocks in recent weeks. However, demand in Florida, Tennessee, Georgia, North Carolina and South Carolina will not be immediately present, and Wilson said he maintains a 'cautious outlook' for next year.

'There will be ample supply of ethanol in 2008 even considering sizeable start-up delays of production facilities,' Wilson said in a note Tuesday.

Nonetheless, several stocks made gains. US BioEnergy Corp. rose 24 cents, or 3.6 percent, to $6.91, Andersons Inc. rose 67 cents to $44.28 and VeraSun Energy Corp. gained a penny to $10.27.