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US ethanol offers and bids emerge in China, amid optimism on trade talks

Singapore — There was an offer heard on Tuesday for US origin denatured ethanol at $510/mt CFR China for a 35,000 mt cargo for prompt shipment, with a bid at $450-460/mt CFR China, after little or no trading activity for fuel ethanol between the two countries since July, when the 70% import duty for US denatured ethanol came into effect in China.

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Traders were optimistic on the US-China trade talks, saying that US ethanol flows to China would begin if the import duty is rolled back from the current 70% to 30%.

"If the duty for US origin [fuel] ethanol is reduced to 30% from the current 70% then [the] price around $480-$485/mt CFR China would be workable," a market source said.

The domestic price for fuel ethanol in China was heard at Yuan 5,300/mt or $779.5/mt ex-factory in East China.

The arbitrage window remains closed at the current offer levels at $510/mt, making the landed price in China at $1,006/mt, accounting for the duty and 16% VAT.

However, if the duty is cut back to 30% for denatured ethanol imports, then the arbitrage window will be open into East China at the current offer levels with the landed price at $769/mt, after adding the duty and VAT.

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Meanwhile, for the arbitrage window from the US to remain open in North China, where the majority of blending mandate will be rolled out, the offers need to come down to $490-495/mt, with prices in North China heard at around Yuan 5,100/mt, market sources said.

Before the trade war between China and US erupted, US denatured ethanol imports into China totaled 424,437 cu m or 537,943 mt over January-March, accounting for 99% of the total denatured ethanol imports into China in the period, General Administration of Customs data showed.

Since the trade war started, US-origin ethanol imports have dropped to 29.4% of China's total denatured ethanol imports of 328,564 cu m. The majority of the US denatured ethanol imports of about 96,629 cu m into China after the trade war began was in May, when the import duty was 45%.

In 2018 after the out-break of the trade war, China turned to Malaysian and Indonesian denatured ethanol to sate its thirst.

Malaysian denatured ethanol imported into China in August and September was 60,055 cu m and 28,303 cum respectively. Whereas, 35,606 cu m and 59,924 cu m of Indonesian ethanol landed in China in September and November, respectively, the customs data showed.

However, the Malaysian and Indonesian cargoes were reported by traders to be of US-origin and re-exported to China with Form-E, which allows duty free imports into China.

-- Donavan Lim, d.lim@spglobal.com

-- Srijan Kanoi, srijan.kanoi@spglobal.com

-- Edited by Elizabeth Thang, newsdesk@spglobal.com