By Eric Noe
CHICAGO, Oct 31 (Reuters) - Archer Daniels Midland Co. on Thursday announced that it will take over industrial ethanol production from Down Chemical Co. in 2005, ending a joint venture between the two that started in 1983.
In July ADM announced the dissolution of the joint venture with Dow subsidiary Union Carbide Corp., beginning in 2003. At the time Dow had planned to continue producing industrial ethanol, but Thursday's announcement marked a decision by Dow to exit the ethanol market.
The joint venture will remain in effect for two years, and ADM and Union Carbide will continue to market industrial ethanol together until Jan. 1, 2005.
"We're confident that this agreement will afford a seamless conversion for Dow's customers," Pat Gottschalk, global business director for Dow, said in a statement.
Dow is a leading U.S. chemical company and produces about 105 million gallons per year of synthetic-based industrial ethanol for use in adhesives, antibiotics and cleaners.
Decatur, Illinois-based ADM, North America's largest processor of corn, soybeans and cocoa, produces ethanol from corn as part of its grain processing operations for use as a gasoline additive.
ADM will use the two-year phase-out of the joint venture to tout the benefits of corn-based ethanol to Dow's customers, a company official.
"What we've got is a little bit of time to introduce the joint venture customers and people using synthetic ethanol to grain-based ethanol and convince them that our product works as well as the others and that ADM should be their supplier," said ADM spokesman Larry Cunningham.
The agreement did not involve any transfer of assets, and Cunningham said he did not expect ADM to increase ethanol production capacity as a result of the takeover.
ADM is the largest U.S. producer of ethanol, with about 40 percent of the ethanol industry's 2.3-billion-gallon total ethanol production capacity.
"From a strategic standpoint it allows them to get into other ethanol markets and strengthens their overall position in the ethanol industry. It doesn't have a real quantifiable impact," said Christine McCracken, analyst with Midwest Research.
The use of ethanol as a gas additive is expected to increase over the next decade as refiners and government officials look for alternative fuel sources. California has banned the use of a competing fuel additive starting in 2004, and a proposed U.S. energy bill that would mandate a tripling of ethanol use by 2012 is currently in congressional negotiations.
ADM shares were trading 7 cents higher at $13.66 midday Thursday while Dow shares were up 25 cents at $26.25, both on the New York Stock Exchange.