biodiesel stocks rally ahead of bush speech

NEW YORK (MarketWatch) -- Shares of ethanol producers rallied Tuesday ahead of President Bush's State of the Union speech, in which he's expected to call for a big increase in the amount of ethanol that refiners mix with gasoline.

The president will propose a massive switch to renewable fuels such as ethanol and biodiesel in his address this evening, the White House said on Tuesday.

Bush's plan would cut gasoline consumption by 20% in 10 years, in part by bolstering production of renewable fuels. He will also ask Congress for the authority to set the corporate fuel-economy standard for cars and trucks, aides said.

The ethanol industry received a boost after Bush advocated alternative fuels in his 2006 State of the Union address.

Ethanol, an alcohol-based alternative fuel produced from starch or sugar-based feedstocks, has gained popularity in response to rising oil prices and concerns that the United States is overly dependent on imported oil.

"Bush's speech is significant to the extent that it continues to shed light on the ethanol industry and the alternative-fuel industry in general," said Emanuel Balarie, senior market strategist at Wisdom Financial Inc.

Wisdom Financial's Balarie said that the demand for ethanol will undoubtedly increase in future years, but the rise will not necessarily take place overnight, since the industry faces challenges in infrastructure and logistics, among others.

"I do believe most of the speculative money that flew into the ethanol markets in the early part of the year will likely reenter, since prices have come off considerably from their highs," he added. "As such, I do expect this rally to continue but not to the degree we experienced in early 2006."

Ethanol is produced by converting crops into simple sugars. The crops include corn, sugar cane, barley, wheat, and biomass. Ethanol is then blended with gasoline to improve its emissions quality.

One blend, called E85, contains 85% ethanol and 15% gasoline. Several auto manufacturers make flexible-fuel vehicles, which run on E85.