Stock analysts say we could be in an "ethanol bubble"
Well, that didn’t
take too long. Just when the President starts to promote ethanol as a way to curb America’s addiction to oil,
industry analysts are already talking about being in an “ethanol bubble”, or so says Abnormal Returns and some of the
analysts quoted there. One says that over-investment in ethanol distilling plants is likely, another warns that
agribusiness giant ADM is saying some of its future earnings will come from ethanol, but that this profit –
likely in the short term – is not guaranteed to last past the next decade. The high interest in and value of
ethanol, especially corn-based ethanol, could raise the price of corn. Or there could be an abundance of corn and
profits would sink (then again, so should gas prices). In any case, investors are being told the ethanol market is
volatile, and that could affect us all.[Source: Abnormal Returns, Image from the Washington Post]
Reader Comments (Page 1 of 1)
AB 5:21PM (5/04/2006)
Until ethanol usage increases, it will always be a minor fuel and liable to many price shocks, perhaps we're in a bublle, perhaps not, but for the time being ethanol prices are bound to shoot up and down. In the long run they're probably good, as ethanol is essentially a gasoline replacement. I work as an energy analyst for a major investment house, and we're telling our clients that oil will never drop below $60 barrel (a bit less than $3 at the pumps) again... At that price ethanol starts to look like a good idea, even with its price uncertainties.
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dmc 10:31AM (5/05/2006)
Ethanol is not the magic solution. It takes a huge amount of intensive energy usage - mechanical, fuel, processing, transport, soil-nutrient, water, solar - for large scale corn production. Not to mention the undesirable by-products and problems caused by the by-products,that are produced - erosion, silt and chemical pollution namely pesticide, herbicide, and fertilizer runoff. I am not saying don't explore ethanol as a strategy, but it is certainly not a catch all solution.
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