Valero, the US’s biggest refiner, is making a big bet on ethanol production in spite a sharp drop in demand that has left 21 per cent of US ethanol capacity idle and a rash of bankruptcies in the sector.

The company recently snapped up ethanol assets that have been hammered by the rapid decline in fuel prices that began last autumn. Though the near-term outlook for ethanol remains weak, the company is positioning itself for a rebound in demand that would accompany an uptick in the economy.