Reduction of Import Tariff on Ethanol May Hurt Domestic Companies' Margins (PEIX, GPRE)

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Includes: GPRE, PEIX
by: Himanshu Pandya

The Bush administration has stated it supports reducing, maybe temporarily, the import tariff on Ethanol.

The recent price surge in gasoline has been blamed on the short supply and high prices of ethanol. With MTBE phased out in several states, the use of and demand for Ethanol has grown and will continue to grow.

Brazil will definitely benefit from any reduction in import tariffs. Public companies such as Pacific Ethanol (NASDAQ: PEIX) and Green Plains Renewable Energy (NASDAQ: GPRE) should have no effect if the import barriers are removed. These companies don’t produce any Ethanol right now, but if the barriers are forever removed then we can see the price of Ethanol coming down and hurting their margins.

Related: Ethanol Stocks Reviewed On Seeking Alpha