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China seen importing US ethanol via alternative routes amid trade war

Singapore — China has switched to importing US ethanol via alternative routes since the US-China trade war erupted in April, the country's General Administration of Customs data indicated Tuesday.

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This was the first time that China has published import and export statistics since the trade war erupted in April.

In a surprise to the market, the data showed that China imported ethanol from Indonesia and Malaysia, both countries with little or no domestic ethanol production.

It was also the first time that both the countries had exported any ethanol to China, market sources said.

China imported 35,606 cu m of denatured ethanol from Indonesia in July and 60,055 cu m and 28,303 cu m from Malaysia in August and September respectively, the data showed.

"Malaysian ethanol exports to China, of course we all know it came from US... how can you export something as domestic when you don't produce it? If that's allowed.. we don't need import duties or trade wars," a trader claimed.

US origin denatured ethanol imports incur a 70% import duty in China and US undenatured ethanol incurs a 50% import duty. Exports out of Indonesia and Malaysia into China are duty free and subject only to the standard 16% domestic VAT, S&P Global Platts data showed.

Traders have been looking for alternative routes to sell ethanol to China since the 70% import duty on US ethanol imports firmly closed the arbitrage window between the two countries.

"The hike in import duty [for ethanol from the US to China] to 70% has killed the imports into China," a trader said.

The domestic price of anhydrous denatured ethanol in China is around Yuan 6,050/mt delivered to the pump, which is equivalent to $686.09/cu m. The cost of US-origin ethanol into China is much higher at about $848/cu m after adding the 70% import duty and 16% VAT.

The importing of US ethanol into China via other countries is likely to continue, with US Department of Agriculture data showing that the US exported 50,600 cu m of ethanol to Malaysia in September.

The import of US ethanol into Malaysia is not for domestic consumption but for re-export, a trader said. "What is really happening is a ship-to-ship transfer and a document switch, putting Malaysia as origin, and the product is being shipped into China," the trader claimed.

Another 20,000-25,000 cu m of ethanol exports from Indonesia to China was heard traded in October. However, this could not be confirmed.

Before the trade war between China and US erupted, US denatured ethanol imports into China totaled 424,437 cu m over January-March, accounting for 99% of the total denatured ethanol imports into China in the period.

Since the trade war started, US-origin ethanol imports have dropped to 37.37% of China's total denatured ethanol imports of 258,544 cu m. The majority of the US denatured ethanol imports of about 99,466 cu m into China after the trade war began was in May, when the import duty was 45%.

In its first hike in ethanol duties as part of the trade war, China imposed an additional 15% duty on US undenatured ethanol on April 2, which took the total import duty to 45%. On June 15, China hiked the import duty on US denatured ethanol by another 25%, taking the import duty to 70%.

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

-- Edited by Wendy Wells, newsdesk@spglobal.com