US ethanol producers are likely to once again surpass 1 million b/d in production after completing seasonal maintenance, market sources said Monday.
"Even if margins aren't great, they will pump as much as they can," said one source about high production rates looming on the horizon.
Over the past year and a half, producers have focused on "de-bottlenecking" at plants. That is, adding production capacity to existing plants to increase production output without building an entirely new facility.
The result has been an increase in US production capacity, with producers able to output over 1 million b/d, as seen several times in late 2015 and early 2016. Production last crested 1 million b/d in January.
Production has fallen in recent weeks, reaching 927,000 b/d in the week ended April 22 according to the most recent Energy Information Administration Data. Production typically falls in April as producers take ethanol plants offline to perform seasonal maintenance.
But maintenance for each plant lasts only a few days, so market players expect production to begin rising again in the coming weeks. Platts Analytics, the forecasting and analytics unit of S&P Global Platts, forecasts that US ethanol production was 935,000 b/d in the week ended April 29.
EIA data for the week ended April 29 is due to be released on Wednesday.
The seasonal production decline has been a relief after production hovered near all-time highs for most of the first quarter of 2016.
The record-high production runs kept stockpiles oversupplied, creating a glut in the domestic market. EIA data showed that US stocks hit a high of 23.307 million barrels in the week ending March 4.
"Gasoline demand should be stronger," said one source when asked if the domestic market was better prepared to handle such high production levels. Domestic blending reached 918,000 b/d in the week ended April 22, with the four-week average climbing to 904,000 b/d.
Still, domestic demand tapers off later in the year, leaving market players looking for new or growing demand centers.
Where ethanol will go as production outpaces consumption remains "the big question," another source said. "If demand doesn't stay strong like it is now, then there are not a lot of places it can go."
Exports from the US to Asia have provided price support for much of 2016. Many Asian countries such as China are increasing their ethanol blending, creating demand for ethanol imports.
It remains to be seen, however, if foreign destinations will prove to be stable, long-term consumers of US ethanol.
