China’s plans to bump up ethanol consumption will create scope for fresh imports of the biofuel, Archer Daniels Midland said, seeing scope for purchases of US corn too.
China’s plans to roll out so-called E10 – a blend of 10% ethanol in gasoline – will see consumption of the biofuel rise from the current 2.6m tonnes a year to “about” 12m tonnes by 2020, said Juan Luciano, the ADM chairman and chief executive.
However, the drive – while prompted in part by a quest to run down the country’s huge corn inventories, besides curb its reliance on fuel imports and reap environmental gains – will prompt a limited increase in corn ethanol production capacity, he said.
A target of relaying on advanced or “cellulosic” ethanol, made from the likes of crop waste, by 2025 will curtail the potential for additional output of conventional, crop-based bioethanol, of which China is expected to have 4m tonnes of capacity in 2019.
‘Does that make sense?’
It appeared “difficult to see” why China’s biofuels industry - faced with the idea that “by 2025, they’re going to be 100% cellulosic” - would build the extra 8m tonnes of output of conventional bioethanol needed to meet the 12m-tonne target, Mr Luciano told investors.
“Does that make sense to build 8m tonnes of ethanol capacity for a couple of years?” he asked.
“I’m not sure they’re going to be building a lot of plants beyond 3m or 4m tonnes of capacity. I’m not sure I’m going to see 12m tonnes of capacity in ethanol been built in China.”
And that squeeze on capacity is “going to be a positive for us in terms of it’s going to create a bigger ethanol market that every now and then… we’re going to export to, like we’ve being doing to Brazil,” Mr Luciano said.
A revival in China’s ethanol imports would reverse the sharp decline which has followed the removal at the start of this year of a preferential import tax rate on purchases of Brazilian and US shipments, with the tariff reverting to 30%.
China’s ethanol imports for the first nine months of 2017, at 7,304 litres, were down 99% year on year, customs data showed.
Imports from the US slumped to 65 cubic metres, from 667,165 cubic metres in the same period of last year.
‘Going to take some corn imports’
Mr Luciano flagged the potential for China to import extra corn too, despite the country’s huge inventories, given that growing the grain requires a “disproportionate amount of water that China doesn’t have.
From the perspective of a “strategic guy in China, why will I use water to grow corn?” Mr Luciano asked.
“I’d rather go into electric vehicles or importing corn.”
“When you have 22% of the world population and 6% of the water, I don’t think you make a lot of sense to use that water to create a fuel that you’re going to burn,” with food use a higher priority.
The ethanol expansion drive means China is “going to take some imports of corn from the US”.
The comments follow a report from the US Department of Agriculture bureau in Beijing which pegged the country’s fuel use of ethanol at 3.155m litres in 2016, equivalent to 2.49m tonnes using a conversion rate of 1,268 litres per tonne.
For this year, ethanol use was pegged at 3.55m litres, equivalent to 2.80m tonnes, and for 2018 at 3.95m litres, or 3.12m tonnes.
The bureau pegged 2018, and 2017, imports of fuel ethanol at less than 1m litres, “on expectations that the high tariff will curb demand”.
However, it also flagged that “at present, industry sources noted that they are not aware of any expansion of existing ethanol plants (dry milling) at this time”.
The bureau named the chief feedstocks for Chinese ethanol plants as corn, accounting for 70%, and cassava at 25%, with molasses derived from sugar beet or cane accounting for the remaining 5%.
Mr Luciano named corn and rice as major feedstocks.