Global ethanol markets are not expected to recover fully at least until 2022 from the demand shock caused by the coronavirus pandemic, which led to a 20% cut in annual global production expectations after more than 250 ethanol plants were seen shutting down globally, Brian Healy, director of global ethanol market development with the US Grains Council, told the Asia Pacific Petroleum Conference, or APPEC, Sept. 15.
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In 2019, global ethanol production was estimated to be around 113 billion liters, compared with about 108 billion liters in 2018, according to S&P Global Platts Analytics data.
Lockdown measures such as stay-at-home orders to contain the pandemic in markets like the US, Brazil and the EU resulted in an "overnight demand disappearance," including a 50% slump in demand for gasoline in the US, according to Healy.
Globally, nearly 23 billion liters of ethanol production was lost overnight, pushing back output to levels last seen in 2013, Healy said.
Platts Analytics estimates 2020 global ethanol production will average 1.715 million b/d (around 99 billion liters), compared with 1.926 b/d in 2019.
Healy said global ethanol trade is expected to decline in 2020, primarily because of weaker demand for fuel ethanol, and a slide in industrial ethanol requirements to a lesser extent.
Policies key to demand expansion
Government policies play a critical role in promoting ethanol usage around the globe, with 13 markets in the last two years announcing a significant expansion in their requirements, Healy said.
However, several key markets like China and Canada have seen delays in the implementation of ethanol mandates, he said.
China in 2017 announced a national ethanol mandate, with an expansion of the mandatory use of E10 fuel — comprising 90% gasoline and 10% ethanol — from a few provinces to the entire country by 2020.
But at the start of 2020, the Chinese government suspended its plan to expand the mandate.
"We have heard from the Chinese government about the expected delays in the national policy, however, the provincial policies still continue to this day," Healy said.
There are still a number of provinces that have a 10% blend rate requirement, and there are also some other provinces that are looking at potential 5% blend rate, he said. "That policy process continues, but at the provincial level at this time, rather than at the national level," Healy said.
"In our view, the delay is in part [due to a lack of] access to ethanol from the global market, as China has placed a 70% tariff rate that does not allow access to US ethanol, and Brazilian product was also not making it to that market," he said.
Canada, another key market for ethanol, is also facing some implementation delays. The country has an E10 mandate that will be implemented in Ontario in 2020 and in Quebec by 2021.
There has been some slowdown in terms of implementing a 15% ethanol inclusion rate, which was originally expected in 2025, but now has been postponed to 2030, Healy said.
As policy delays in key markets play a large role in dictating the direction of how global ethanol demand expands in the long term, there are several other factors following the pandemic that can affect demand growth in the near term.
There is a long tail to ethanol demand recovery, Healy said.
"There are many unknowns at this point of about what is happening with governments' responses, getting people back into what had been their typical work experience, and so all of those [factors] will continue to weigh on demand for gasoline and ethanol going forward," Healy said.
Demand drops in key export US markets
In April, weekly US ethanol production hit its lowest point in 12 years, reaching 600,000 b/d.
Much of that decline has now rebounded, and ethanol production is at about 90% of 2019 levels, Healy said.
US ethanol exports also saw a steep drop in the second quarter of 2020, as demand from big buyers dwindled, including from Brazil, which is the largest market for US ethanol.
Brazil is by far the largest slice of US ethanol players' pie that has been erased, according to Healy.
US ethanol exports to Brazil between September 2019 and July 2020 slumped 357 million liters compared with the same period a year ago to 989 million liters, according to data from the US Census Bureau.
Brazilian demand dropped after further easing in sugar prices, which stimulated domestic ethanol production, while a tariff rate quota also hampered shipments.
Brazil on Sept. 14 extended a 20% tariff on out-of-quota imports of US ethanol for another 90 days.
Canada, the second-largest market for US ethanol, also saw a decline in demand for imports.
Canadian imports of US ethanol in the 2019 marketing year through July were down 57 million liters on the year, data from the US Census Bureau showed.
"The decline is primarily due to a loss in the demand because of stay-at-home orders, leading to [Canada's] overall demand for fuel and gasoline falling about 15% over the calendar year of 2020," Healy said.
Industrial usage increases
India, South Korea, Mexico and Nigeria are all industrial export markets for the US, with shipments to these destinations rising, according to Healy.
Exports to Mexico showed a significant change in 2019-20, as US ethanol shipments rose by 83 million liters from the previous marketing season, according to data from the Census Bureau.
Industrial usage saw a sharp rise as demand for ethanol-based hand sanitizer shot up following the pandemic.
Markets like South Korea import US ethanol and resupply end products like hand sanitizer to Japan and Southeast Asia, according to Healy.