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Understanding Pacific Ethanol’s Operating Metrics

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Sales volume

Pacific Ethanol (PEIX) sells ethanol produced by the company as well as from third-party producers. In the past 12 months (ended September 2016), the company shipped about 243 million gallons of ethanol to its customers (PUW).

The last 12-month shipment volume resulted in a 44% growth YoY (year-over-year). The Ethanol Production segment contributed the most to this growth and saw a shipment volume growth of 90% YoY to 478 million gallons. Most of this increase in growth came from increased internal capacity, which gave the company more ammo in the past 12 months.

The Marketing segment also grew by 13% YoY (year-over-year) to 418 million gallons in the past 12-months, but not as fast as the Production segment.

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Ethanol demand

Growth in sales volume is a function of strength in demand. US regulators mandated ethanol blending with gasoline to slow down consumption of fossil fuels and to introduce additives that are more environmental-friendly. This makes a strong case for ethanol demand to the benefit of companies like Pacific Ethanol, Archer Daniels Midland (ADM), Valero Energy (VLO), and Renewable Energy Group (REGI).

While stronger demand is positive for the above companies, we also have to consider its relationship to selling prices and input costs. We’ll discuss this further in the next part of this series.

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