COVID-19 Impact on Industrial Ethanol in the Chemical and Materials Industry
Ethanol has a wide range of applications in many industries such as consumer goods, automotive, and several others. It is used as an additive to automotive gasoline and is the main intoxicating ingredient in preparing alcoholic beverages such as wine and beer. However, the outbreak of COVID-19 has altered the global industrial ethanol market. During pandemic, the demand for ethanol has increased due to the rising demand for sanitizing products such as disinfectants, hand sanitizers. But, the supply chain disruptions resulted in the shortage of ethanol.
The government and other trade associations have been trying to maintain the demand level and thus have taken various steps to balance the demand and supply of ethanol in the market.
AFTERMATH OF COVID-19 AND GOVERNMENT INITIATIVES TO BOOST THE GLOBAL INDUSTRIAL ETHANOL MARKET
The government has put forward many measures to maintain the demand and supply of ethanol products in the market. The government policies are aimed at the expansion, competitiveness, and profitability of the ethanol sector. The active support of the government has encouraged producers to focus on efficiency and productivity gains. The government's focus is to establish the ethanol industry in order to reduce economic and energy vulnerability.
STRATEGIC DECISIONS FOR MANUFACTURERS AFTER COVID-19 TO GAIN COMPETITIVE MARKET SHARE
The concern over environmental safety has led manufacturers to produce ethanol from greener sources. For instance, the U.S. government supports manufacturers who use eco-friendly methods for producing ethanol using lesser amounts of energy. Efforts were taken to increase the production capacity of ethanol to overcome the shortage leading to the growth of the ethanol market. The increasing demand for ethanol and rising government initiatives to produce and use fuels from greener sources have helped manufacturers gain ethanol market share. This step could support the producers in obtaining ethanol at a much lower cost and prevent huge amounts of loss. Moreover, the adoption of environmentally friendly techniques substantially increases ethanol demand.
IMPACT ON DEMAND
The general slowdown of the economy and the drop in transportation and fuel demand further lower the global market's ethanol demand. However, fuel ethanol demands are viable to expand in the future despite the advent of the COVID-19 pandemic. During COVID-19, the ethanol producers in the U.S. expanded their ethanol production capacity for supplying to the global market to respond to the rising demand for different grades of ethanol.
According to Iowa State University's Center for Agricultural and Rural Development (CARD) projections, ethanol prices in Omaha, which peaked at $1.44 per gallon in November 2019, began to plummet in late 2019 and early 2020, falling to $1.03 per gallon in February before sliding below $1 in March to average just $0.84 per gallon. The nearly 40% drop in ethanol value from November 2019 to March 2020 put ethanol plant operating margins under severe strain. Daily ethanol plant operating margins above variable production costs peaked in November at $0.36 per gallon of ethanol produced but dropped in early 2020 and were negative by mid-March. The failure to recoup variable production costs sent a strong message to ethanol producers to consider closing their operations. Various ethanol manufacturers announced in late March and early April that they were shutting down plants or delaying anticipated plant openings, resulting in a dramatic fall in corn utilization.
In April 2020, according to an article by Purdue University, USDA (U.S. Department of Agriculture) forecasted that 37 percent of the 2019 corn crop would be utilized to make ethanol, with roughly 40 percent of the grain being used as animal feed as recently as March 2020. However, the drop in oil and gasoline prices that began before COVID-19 combined with weak consumer demand for gasoline. Recent orders for consumers to shelter in place and the U.S. economy's descent into recession indicate that corn usage will be significantly lower than projected earlier this year. To figure out how much demand for corn for ethanol and dried distillers grains with soluble (DDGS) will shift in the coming weeks and months, lower gasoline prices on ethanol pricing and the resultant impact on ethanol plant operating margins. The changes in gasoline use by consumers in the short term are due to people staying put, and in the long run, as the U.S. economy tries to recover. According to the findings, the impact on overall corn utilization might be enormous, resulting in a big increase in corn ending stocks at the end of the 2019 crop year.
In January 2021, according to an article by Minnesota Corn Growers Association, the Renewable Fuel Association (RFA) published a year-end white report detailing the impact of the COVID-19 pandemic on the ethanol business. The demand dropped drastically in April and never recovered to pre-pandemic levels. Due to lower demand, ethanol prices plummeted during the pandemic, falling as low as 30 cents per gallon in March and April and 22 cents per gallon in November. The industry's revenues have been reduced by $3.8 billion due to the volume and price reductions. Unfortunately, the impact of COVID-19 on the ethanol sector is projected to last until late spring at the earliest, until the vaccination rate rises.
IMPACT ON SUPPLY CHAIN
During the outbreak of COVID-19, factors such as shortage of raw materials, production shutdowns, and low operating rates pushed the gap between demand and supply. Also, due to the extended lockdown, ethanol's entire value chain, including its consumption, production, and export, is disrupted. However, the spread of COVID-19 has emphasized the need to maintain safe and hygienic surroundings, and thus the production of sanitizers can be considered a continuing process. Moreover, the company’s manufacturing ethanol are facing issues with their operation as most of them are under shutdown, which adds up to the interruption of the supply chain.
CONCLUSION
Ethanol has been used in consumer and industrial goods as one of the largest volume chemicals. Commercial products such as perfumes, beverages, aftershaves, and mouthwashes contain ethanol in them. The high demand for ethanol has led to sanitizers, and other end-products as the spread of the COVID-19 is increasing. The prices of ethanol had also increased due to the demand-supply gaps in the global industrial ethanol market. Due to the restrictions of lockdown, manufacturers fail to cater to the needs of the increasing demand. The government has also provided financial aids to support ethanol manufacturers to maintain equilibrium in the market.
