Stating that the ethanol business is a challenge is an understatement! But could it be that a cross-over operating point is at hand at Pacific Ethanol (PEIX)?
3Q Operating profile:
- Construction phase of 4 plants will be DONE. Will some cost for supervising construction come out?
- In-house production of ethanol will SURPASS resales volume. Future sales will push in-house volume while using resales source as supply insurance.
- Year to year market volume still expanding
If PEIX can slowly substitute its own ethanol for ethanol resold in past quarters, to the SAME CUSTOMERS, PEIX can expand its margin; thus spreading costs (production and marketing ) over its revenues. In other words, if its margin is 1 cent on resold volume, it can make 5-10 cents on in-house production.
So, even if the spread between corn and ethanol stabilizes, better margins from selling PEIX home-made rather than resales volume of ethanol can create a wider operating margin than during the plant construction phase.
Kudos to PEIX for developing a marketing business AHEAD of the construction completion of its plants.