Moving to a 10 percent gasoline blend by 2020 would require more than four billion gallons of ethanol annually
It appears as though China’s ethanol industry will fall woefully short of meeting the country’s looming E10 policy.
China announced in 2017 that it was moving to a 10 percent ethanol blend in its gasoline supplies by 2020.
That would require more than four billion gallons of ethanol annually. China is blending about one billion gallons annually today.
That sizable gap has ethanol exporters in other countries salivating, including the world’s largest exporter — the United States.
“In my estimation, it would be one of the biggest opportunities right now that we have in ethanol on the global stage,” said Craig Willis, senior vice-president of global markets with Growth Energy, the leading U.S. biofuel trade organization.
“We think we could cover some of that for sure.”
Willis said 48 percent of China’s gasoline demand is located on the coast of the country, which would make U.S. ethanol prices competitive with ethanol produced in northeastern China.
“We’re pretty good at exporting ethanol out of the U.S. We can get it to the coast of China very efficiently,” he said.
Arlan Suderman, chief commodities economist with INTL FCStone, said China’s E10 conundrum is one of the most “friendly items” he sees in the corn fundamentals.
Corn ethanol margins are poor but they would get a whole lot better with a new wave of demand out of China.
“We’ve heard some reports of U.S. ethanol already flowing to China through third countries,” he said.
Those countries are blending a small amount of domestically produced ethanol with imported U.S. ethanol and then re-exporting it to China.
U.S. ethanol can’t flow directly to China because it faces a stiff, 70 percent tariff in that country, which was partially the result of the ongoing trade war between the two countries.
Suderman is surprised the commodity hasn’t been placed on China’s tariff waiver list since there is such a glaring need for imported ethanol.
China might delay implementation of the E10 policy until there is adequate domestic capacity, but Suderman doubts that is going to happen.
“The primary thing that is driving them right now is the desire to clean up their air before hosting the Olympics,” said Suderman.
“That was quite an embarrassment to them the last time they hosted.”
Beijing has been selected as the host city of the 2022 Winter Olympics.
Suderman thinks China could eliminate ethanol tariffs as part of a goodwill gesture in trade talks with the U.S.
That would be bullish for U.S. corn prices, especially with a short crop on the horizon.
The ethanol sector consumes one-third of total U.S. corn supplies annually, so it has a substantial impact on the price of the commodity.
Willis said sales to China were booming before the trade spat. The U.S. shipped 52 million gallons of the fuel to China in a two-month span in early 2018.
“We were trending the right way but that has come to a complete standstill since March of 2018,” he said.
That’s why the U.S. ethanol sector is keeping a watchful eye on the trade dispute.
Willis believes China could take up to one billion gallons of U.S. ethanol a year if the tariffs were lifted. To put that in perspective, the U.S. exported a total of 1.7 billion gallons of ethanol around the world in 2018. China took 52.9 million gallons that year.
Suderman said an end to the trade dispute would definitely help corn prices rally but so will a short crop.
Corn prices increased when stories about the delayed planting and lost acres were dominating the headlines but the market has since drifted lower.
He expects some renewed action in the weeks ahead as firms like INTL FCStone release their client yield estimates and the U.S. Department of Agriculture releases its acreage and yield estimates on Aug. 12.
“The market is going to get a lot of fundamental data to trade here over the next couple of weeks,” he said.