Ethanol Woes Continue: Pacific Ethanol Short on Cash, Nova Biosource Files for Bankruptcy

By Jeff St. John

The ranks of biofuel producers facing bankruptcy continues to climb, with Pacific Ethanol (PEIX) the latest to add its name to the list.

The Sacramento-based maker of ethanol from corn reported last week that its creditors had given it until the end of April to pay them back or renegotiate terms. The company is in default on $250 million in loans and could face bankruptcy if it can’t find more cash or renegotiate.

The past two months have seen Pacific Ethanol shutter three of its five plants in the face of mounting losses. The company last week reported a 2008 loss of $151 million, a decline from 2007 losses of $18.6 million. While the company’s sales grew to $704 million in 2008, up from $461.5 million in 2007, the company’s 2008 cost of goods eclipsed sales for the year, rising to $737.3 million, up from $428.6 million in 2007.

Those figures lay out the challenge facing ethanol companies, with high prices for corn and energy eking away at margins and falling gasoline prices dragging down prices for the fuel they make.

Aventine Renewable Energy (AVR) warned last month that it too may face bankruptcy if it can’t raise cash. The Pekin, Ill.-based maker of corn-based ethanol reported a loss of $47.1 million for 2008, compared to a profit of $33.8 million in 2007.

And VeraSun Energy Corp. (VSUNQ.PK), another once high-flying corn ethanol maker, filed for bankruptcy in October (see VeraSun Files for Bankruptcy). Last month, top U.S. oil refiner Valero bought out VeraSun’s plants

Whether refining giant Valero can make a go of the business remains to be seen. It bought out VeraSun’s plants for $477 million and said earlier this month that it intended to run them at full capacity despite ethanol’s poor margins. The plants it bought have an annual production capacity of 780 million gallons, or about 7.5 percent of the country’s total.

Times are hard for biodiesel makers as well. Last week, Houston-based Nova Biosource Fuels (NBF) threw in the towel, filing for bankruptcy protection. The company reported a 2008 loss of $42.3 million, compared to a 2007 loss of $19.4 million, even as revenues grew nearly threefold.

Nova Biosource has also seen falling prices for petroleum-based diesel fuel dragging down what it can command for its biodiesel. It reported that its per-gallon sales price has fallen from a peak of about $5 in mid-2006 to less than $3 in late 2008 and early 2009.

Europe’s decision to impose tariffs on biodiesel imports also has hurt U.S.-based biodiesel makers, which export roughly four-fifths of their product to Europe, the New York Times’ Green Inc. blog noted.

Comments

[borneoman:]

the timing of this news is funny. this publication is released just when PEIX spiked 30%+. makes me wonder if seekingAlpha have any shorts position.

Apr 07 02:55 PM

[SA Editor J...:]

Seeking Alpha doesn't hold positions in any stocks, long or short. We merely aggregate news from about 1,000 different contributors, ranging from market professionals to amateur investors.

Apr 07 03:04 PM

[borneoman:]

Thanks for the feedback. I didn't understand the setup for Seeking Alpha. My apology to your Seeking Alpha.

Then, the author of the articles published should consistently disclose their positions, whether long/short/none. The timing of this article is still suspicious to me.

Apr 07 04:15 PM

[Paul Killinger:]

It's curious why American ethanol producers are struggling at the same time Brazilian ethanol makers are reaping record profits. Could it be their secret is to make the stuff out of sugar instread of corn? You think?

Apr 08 11:09 AM

[Paul Killinger:]

Earth calling Congress. Come in, please.

Apr 08 11:11 AM

[RWCMom:]

Why Brazilian ethanol makers are reaping profits? llower cost of labor, no health & safety standards, ripping out the Amazon rainforest at the rate of a several football fields a day with little or no oversight for long term environmental concerns. That being said, sugar can is a more efficient fuel. Sugar is what keeps Hawaii pretty energy self-sufficient.

On Apr 08 11:09 AM Paul Killinger wrote:

> It's curious why American ethanol producers are struggling at the
> same time Brazilian ethanol makers are reaping record profits. Could
> it be their secret is to make the stuff out of sugar instread of
> corn? You think?

Apr 08 01:36 PM

[Jade Queen:]

Meanwhile, mesquite pods go unnoticed and unharvested in the SW, and kudzu gets poisoned in the S. We have so many sources that could be turned into alcohol, not to mention the possibilities if U.S. farmers were allowed to make profits on hemp, as opposed to letting other countries do that. It's mystifying that bail-out funds went off-shore and systematic opportunities go offshore while our own people are prevented from sensible new business. I am stumped as to how the boom in U.S. corruption can be curbed. Perhaps unemploying so many people that they need to go out on their own is the only way.

Apr 08 02:37 PM