China has abandoned its plans to impose a 10% ethanol blend in petrol for the whole country this year. This is according to sources involved in the issue. The reason for this is a drastic reduction in corn stocks and limited production capacities for the production of biofuels.
This change of heart by the government in Beijing has shocked the operators of ethanol plants that are still under construction as well as exporters of biofuels in the USA and Brazil. The latter had already expected demand from China to increase, which is also to be contractually agreed in the Phase 1 deal with the USA.
Back in 2017, Beijing announced that the blending of ethanol with petrol would be set at 10% from 2020. This was intended to reduce the massive state corn stocks at the time.
At a meeting of ethanol producers with China's National Development and Reform Commission (NDRC) at the end of December, it was announced that the plans would only be adhered to in a handful of provinces. Now there is only talk of an E10 target. It is therefore now unlikely that ethanol will be imported without government import controls.
A study suggests that ethanol production should only be increased if the supply of food to the population is guaranteed. There are many indications that the state grain reserves in China are shrinking.
In 2016, the USA exported around 20% of its ethanol production to China, worth USD 300 million per year. Since then, deliveries have been a mere trickle. US exporters are hoping that the Phase 1 deal, which is due to be signed in Washington next week, will change that again.
In 2017, China demanded 30% import tariffs on ethanol from the US, and in 2018 another 40% was added as a result of the trade dispute. What is happening now is definitely a step in the wrong direction for the USA. But even if the E10 program in China is delayed, China must take measures to reduce its environmental impact.
Source
HANSA Terminhandel
