CHINA: Transportation bottlenecks may lead to ethanol imports from U.S. and Brazil

Published: 09/30/2018, 1:41:43 AM

Logistics hurdles in China might prompt the country to import ethanol to comply with its E10 ethanol blending program set to start in 2020, reports Anna Flávia Rochas for Sugaronline.

China announced in 2017 a mandate for a 10% ethanol mix in gasoline from 2020, in an effort to reduce corn stocks in the country.

In an optimistic scenario, China would be able to increase its total ethanol nameplate capacity to 3.35 billion gallons by 2020, from a current total capacity of 1.2 billion gallons per year, according to Aakash Doshi, commodities strategist for Citi Investment Research, during a presentation at S&P Global Platts 5th Annual Kingsman Miami Sugar Conference this week.

However, this capacity wouldn't be enough to cover all of China's fuel ethanol demand by 2020, which is estimated at 4.5-5 billion gallons considering a domestic gasoline consumption forecasted at 48 billion gallons for that year.

In addition to that, China could face bottlenecks in transporting ethanol inside the country, including a crowded rail network used for moving many different commodities.

"So, they might just end up importing from the U.S., and that could also be a positive for Brazil should they become a larger and larger exporter as they once were several seasons ago," he said.

Doshi added that the U.S. is the best poised to cover China's ethanol demand because its biofuel is cheaper than Brazilian.

"Brazilian ethanol production is also a lot more volatile than that in the U.S.", he said. "I really think that the US is best poised in this environment to export to China despite the current US-China trade quarrel."

China's push to increase its ethanol mix could also help revive investment in the global biofuel industry, which has stagnated since 2007. "Even a 0.5-1 billion gallons annually in additional ethanol trade flows into China is bullish for conventional biofuel prices and US corn in particular," said Doshi.