US ethanol producers have suffered dismal margins in recent months but profits should improve later this year as companies abandon or delay plans to build new distilleries.

"There may be some light coming at the end of this tunnel,” Mark Flannery, an analyst at Credit Suisse, said in a teleconference.
Amid generous government incentives, the US ethanol industry went on a building binge over the last year that boosted capacity 50 per cent to 8.5 billion gallons per year (gpy). That led to a supply overhang of the alternative fuel that has pressured margins to as low as 15 cents per gallon, much thinner than last year at this time. But the pace of new distillery builds has slowed on tighter credit markets, more expensive steel and other building materials, and record prices for US ethanol feedstock corn.
Archer Daniels Midland, ConAgra and private company Poet, for instance, have delayed or canceled plans for ethanol distilleries this year. Late last year at least four others did the same.
Flannery said delays and cancellations of ethanol plants should mean short-term ethanol distilling capacity will rise only 3 billion gpy, versus 5 billion gpy projected by the Renewable Fuels Association, an industry group. “We can start to see how demand and supply could get a little more back into balance in the second half of this year and into 2009,” said Flannery.