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China's high domestic corn prices hurting ethanol producer margins

Chinese ethanol producers Tuesday reported substantial pressure in their profit margins due to artificially high corn prices.

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This comes in spite of several rounds of government auctions, failing to clear large inventories.

In the government's latest auction on July 31, 5.27 million mt of corn was on offer but only 69,239 mt was sold, just 1.3% of the total available.

The average successfully traded price was Yuan 2,287/mt ($368/mt), according to the official government data.


Ethanol producers said that the high prices on offer were the key reason for the small volumes purchased at auction.

"The government is protecting corn prices, but we are not purchasing much," said a northeastern beverage-grade ethanol producer. "Although our ethanol offer price has gone up to Yuan 5,800/mt ($934/mt), we are still making a loss. It's the same story for fuel ethanol as gasoline prices remain low."

China's fuel ethanol producers are required to peg their prices to gasoline prices.

"The price of domestic corn is too high now, but due to protectionist measures, we cannot buy imported corn," a fuel ethanol producer said.

The government subsidy for fuel ethanol has decreased to a mere Yuan 100/mt ($16/mt) this year, further affecting producer margins.

As of July 31, the government had held 17 rounds of auctions to sell its stockpiled corn, but is seeing little success.

According to government data, an average of 5.3 million mt of corn is put up for sale every week, but only 3.57 million mt have been sold in total after 17 rounds.

Most of the corn produced from 2011 and 2012 was not sold.

--Shen Xichen, xichen.shen@platts.com
--Edited by James Leech, james.leech@platts.com