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Ethanol arbitrage window from the US to China open: sources

Singapore — The fuel ethanol arbitrage window from the US to China has opened, as the US ethanol prices dropped to more than a one-year low, market sources said Tuesday.

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Offers from the US were heard at $540-$550/mt CFR China for 30,000 mt for November shipment, while China's domestic ethanol ex-factory prices were heard at around Yuan 5,800/mt ($879/mt). Domestic transportation cost was heard at around Yuan 100/mt.

"US prices are super attractive to import now, even including the 30% import duty," said a major Chinese player. Another Chinese trader source said it only made sense when US prices are around Yuan 500/mt lower than domestic prices, which is in line with the current price levels.

China currently has a 30% import duty on denatured ethanol and 17% VAT for ethanol. After the calculation, imported US ethanol would be around $821-$837/mt CFR China, about $57-$73/mt lower than domestic prices.

China's domestic ethanol prices are also expected to remain supported as the Beijing's environment inspection resulted in the shutdown of some ethanol plants, tightening the supply in the local market.

At the same time, a subsidy for domestic ethanol plants expired in July, driving production costs higher.

China imported a total of 890,140 cu m ethanol in 2016, 96% of which was denatured ethanol from the US at 853,260 cu m.

But the arbitrage window to China closed in January, when Beijing put a 30% import duty on denatured ethanol. Over January-August, China's ethanol imports amounted to only 4,096 cu m, latest customs data showed.

--Gao Xiaojuan, xiaojuan.gao@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com