Ethanol Going From Panacea to Pariah - WSJ

by: SA Eli Hoffmann

In the span of just one year, ethanol has "gone from panacea to pariah" in the eyes of many investors, the Wall Street Journal reports. Critics blame ethanol for high corn prices, and question whether it really reduces the need for oil and helps the environment. A recent study by the Organization for Economic Cooperation and Development said biofuels, "offer a cure [for oil dependence] that is worse than the disease." Another organization said ethanol bolstered corn-growing could strain water supplies, while the American Lung Association said it's concerned about the biofuel's contribution to air pollution. While ethanol producers such as VeraSun Energy (VSE) and Pacific Ethanol (NASDAQ:PEIX) continue to lobby Congress to boost the amount of ethanol refiners are required to mix into gasoline, "what once looked like a slam-dunk" is now far from a given, the Journal says. Other factors driving the share prices of ethanol stocks down include over-production, slipping prices, growing capacity and increasingly angry farmers and food-producers. "Our love affair with ethanol has finally ended because we've taken off the makeup and realized that, lo and behold, it's actually a fuel," Friedman, Billings, Ramsey analyst Kevin Book said recently. The WSJ article follows an earlier Bloomberg report (see summary) raising similar concerns about ethanol demand and supply.

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