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Ethanol market participants at odds over Chinese import viability

Bangkok — There was considerable debate about the role of China as a potential export market for ethanol in the long run during the FO Licht Sugar & Ethanol conference held in Bangkok, Thailand Thursday, as speakers took opposite sides over the matter.

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China has garnered significant market interest of late, as the country's ethanol imports had reached an all-time high in 2015 at 686,907 cu m.

Nearly 70% of that volume was the denatured fuel-grade variant, which is predominantly used for gasoline blending.

While latest figures showed January imports shrinking by nearly three quarters from the previous month's high to 46,993 cu m, the figure is expected to rebound in the coming months as more cargoes make their way into the region.

Michael Dwyer, chief economist at the US Grains Council, projected that China could consume 4 billion gallons (11.95 million mt) of ethanol in 2022, assuming a nationwide E10 blending ratio. This compares to the estimated 600 million gallons (1.79 million mt) used in 2012.

While Dwyer acknowledged that future growth in the Chinese import market remained uncertain, he added that the regional powerhouse, along with other Asian economies such as India and South Korea, continued to show great potential for fuel-grade ethanol use.

A low penetration rate, high growth in gasoline consumption, as well as looming concerns over air pollution all pointed towards greater use of gasohol in the future.

Dwyer pointed that US ethanol was currently the most competitively priced product, with a FOB price that is some 25% lower than its closest rival Brazil.

Such imports could help to bridge the gap while domestic production catches up with demand, he added, referring to the current situation in the Philippines while pointing out that the US had itself bought huge volumes from Brazil when the Renewable Fuel Standard was still in its infancy during the late-2000s.

"Unwavering commitment is required," Dwyer commented on the ethanol blending mandates being progressively introduced in several Asian countries, adding that enforcement goals are needed to make these mandates more than just aspirations. "[The US Grains Council] is prepared to provide advice to help implement these mandates and boost domestic production."

Meanwhile, Guo Shunjie, head of ethanol trading at Chinese food conglomerate COFCO downplayed the impact of China, as it sought to provide a "real understanding" of the future prospects in the import market.

Total demand for fuel-grade ethanol in China currently stood at 2.5 million mt, projected Guo, as E10 gasohol constituted a quarter of total gasoline demand at 100 million mt.

He expected the market to grow at just 4% this year due to the economic slowdown.

Guo stated that his company was itself the top importer last year with around 25% share, while Chinese oil giant Sinopec was a close second at 22%.

Smaller private industry players accounted for the remainder.

He added that imports only accounted for 15% of COFCO's ethanol sales last year.

While reducing dependence on fossil fuels and combating air pollution had prompted China's push towards E10 gasohol, Guo said the overriding reason was to destock corn inventories, which has reached the highest-ever level at over 180 million mt.

Most of the inventory stocks are aged and therefore can only be used for non-food applications, such as ethanol production.

Guo maintained it was "unlawful" for importers to sell undenatured ethanol even if they had imported such cargoes legally. "Without been given mandated provincial markets of their own, importers had 'stolen' the markets from the official licensees," Guo asserted.

COFCO currently has a state-sanctioned monopoly of fuel-grade ethanol sales in three provinces and can compete in another three.

Guo projected that importers' margins will fall from around Yuan 300/mt in 2015 to zero this year due to a closed import arbitrage.

He also called for stronger measures to control imports, as it would run counter to the government's aim to reduce corn stockpiles.

--Toh Wei Zheng,
--Edited by Irene Tang,