Fuel ethanol industry in China about to surge predicts CCM 03-10-2017

Market intelligence firm CCM foresees a huge boom in China’s fuel ethanol industry in the near future. The reasons for this assumption are a huge inventory of raw materials, new policies in 2016, which benefit producers, and a strong demand in the future.

 

China may witness a new surging industry with lots of potential in the near future. The currently global leader of methanol use in fuel products has an increasing interest in enhancing the fuel ethanol industry as well, which is mainly build on corn as the raw material.


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One indicator of this new trend is China’s textile and clothing manufacturer Shiqi Group is going to create a gigantic plant for a yearly production of 300,000 tonnes of fuel ethanol in June 2017. The project is supported and partly invested by the government of Kailu County and Inner Mongolia and will cost more than USD175 million. The enterprise takes advantage of the short distance to China’s main corn planting area in Inner Mongolia and states a huge confidence in China’s fuel ethanol market.

 

CCM has analysed the situation of fuel ethanol in China and gives the reasons, why the industry might experience a huge boom in the near future.

 

Gigantic corn storage

Facing a huge oversupply of corn currently, due to the corn temporary storage policy in recent years, the Chinese government now wants to reduce the corn inventory and focus on other planting crops like wheat and rice. The total storage of corn even reaches 236 million tonnes. The main problem of this corn is, that it is partly very old, harvested in 2012 and 2013 and additionally indicates low quality. This corn cannot be used for animal feed, nor corn starch production.

 

As the production and demand of corn are quite balanced these days, the government is seeking for effective ways to get rid of the remaining inventory of corn. Part of these new consumption plans for corn is the support of corn sweeteners and fuel ethanol. Hence, fuel ethanol producers are enjoying low prices of raw materials and are likely to enlarge the production in the future.

 

Beneficial new policy

Related to the efforts in reducing the gigantic corn storage in China, the ethanol industry is enjoying some preferential benefits from the government. The first policy in this direction was implemented in August 2016 with a reduced export tax rebate rate of ethanol and other corn products to 13%, according to CCM. Later the year on November, several provinces in China, which are the main corn planting areas, have started giving subsidies for corn deep processing productions. On December, as part of the new Catalogue of Industries for Foreign Investment, those investments have been deregulated, especially for the corn deep processing and fuel ethanol industries.

 

Growing demand

At the end of the year 2015, the OPEC countries decided to reduce the output of crude oil significantly. The new policy is active since the beginning of 2017 and will go on at least the first half of the year. If this trend will go on in the second half of 2017, an imbalance of supply and demand of crude oil will be the result, of which buyers might turn to biofuel like fuel ethanol as a replacement. This will increase the demand for ethanol fuel worldwide and also in China. China’s current consumption of ethanol fuel is around 3,850 million litres yearly.


 


Furthermore, the imports of Chinese fuel ethanol are likely to drop significantly in 2017, according to Agrimoney. The reasons can be found in trade restrictions and a rising domestic production in China, as mentioned before. As a fact, China’s government aims an ethanol production of 6,335 million litres by the year of 2020.

 

What’s more, ethanol is an alcohol with inherent issues such as its solubility in water and corrosiveness. Ethanol or its derivative products can be added to fuels such as gasoline and liquefied petroleum gases. Similar to how ethanol is currently blended into motor gasoline in the United States, China wants to expand the blending of methanol and put more attention to Ethanol as a fuel.

 

Ethanol has about half the energy per mass than gasoline, which means it takes twice as much ethanol to get the same effect. On the one hand, ethanol burns cleaner than gasoline as well as producing less carbon monoxide. On the other hand, ethanol produces more ozone than gasoline and contributes substantially to smog. Engines must be modified to run on ethanol.

 

About CCM

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets.


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