Sustainable Energy Indices Mixed as Commodities Retreat (Week Ending 7/18)

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 |  Includes: CREE, OESX, PLUG, VSUNQ
by: Cleantechblog

By Mark Henwood 


Emerging Markets, EAFA, and S&P500 all rose this week partially on reduced pressure on commodities (NYSEARCA:DJP) which fell 7.8% for the week.
 

Biofuels shares responded mid-week to news that Verasun (VSE) was keeping 330 MGY per year of new capacity idle. As I wrote in my post for the week ending June 13th, with tight margins it comes as no surprise that producers are reducing production plans . With ethanol consuming somewhere around 30% of corn supplies, the cost of corn should respond to a reduction in ethanol production. Reduced ethanol supplies should be supportive of stronger ethanol prices. At some point an equilibrium will be reached.


Later in the week UBS upgraded the ethanol sector to a buy on "improving margins". VSE's price (and others) responded strongly gaining 21% on Friday and ending the week up a huge 49% at USD 6.12/share. With this big change I thought the margin on producing ethanol would have materially improved. True, corn has been dropping significantly since the start of July with the December contract closing Friday on the CBOT at USD 6.28/bushel. But ethanol has been falling also in July, with the December contract closing Friday at USD 2.36/ gallon leaving the "corn crush" margin at the same slim USD 0.2/ gallon it was in the middle of June when Verasun's stock price was below USD 5.0/ share. I'm not sure I understand the improving margin argument.


The LED-Lighting strategy continued to disappoint falling an additional 9.9% for the week, with a cumulative decline of 35% since we started tracking the sector at the end of March. Orion Energy Systems Inc. (NYSEMKT:OESX) lost 38.7% of its value for the week after it reduced its guidance for 2009 to a 25-28% growth rate, down from its previous 50% expectation. With its long term potential, I'm looking for signs this strategy may be fairly priced after this year's big correction.


Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks and has positions in Renewable Electricity.