China’s Resumption of US Ethanol Imports by No Means Likely Despite Phase One Deal

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January 6, 2020

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by Donavan Lim (S&P Global Platts) US exports to China unviable even if tariffs return to pre-tension levels; Philippines’ fuel ethanol imports to fall further; South Korea’s imports from Pakistan to dry up in Q1 — An easing of trade tensions between the US and China could pave the way for a resumption China’s imports of US ethanol in 2020 — although this is currently unviable even if tariffs are lowered — while rising ethanol production in the Philippines in 2020 is set to reduce its requirements for imports further in the year.

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US ethanol exports to China all but ground to a halt in 2019 after China imposed a 70% import duty on denatured ethanol from the US amid escalating US-China trade tensions.

Prior to the tension, China’s imports of US denatured ethanol totaled 424,437 cu m over January-March 2018 and accounted for 99% of its total denatured ethanol imports in the period.

With phrase one of the US-China trade agreement now slated to be inked in early 2020, a resumption of US ethanol exports to China is a possibility.

However, even if China’s import tariff on US ethanol was to return to pre-trade tension levels, US ethanol exports to China are unviable at current prices.

It is possible — but unlikely — that the Chinese government will allow cheaper US ethanol imports to surge into the country by lowering the tariff back below 30%, as this would destroy its fledgling domestic ethanol industry.

What could happen instead is the introduction of a quota system — similar to that for US soybeans — under which a set volume of ethanol from the US would be allowed in “at a preferred tariff” level, a market source said. Equally, there could be an increase in the fuel blending mandate to accommodate “additional” US ethanol.

Either way, ethanol is expected to be included in the phase one US-China trade agreement in order for China to reach its required $40 billion-$50 billion of purchases under the deal.

However, China may not have the blending infrastructure to take in a large volume of imported ethanol. The maximum volume of fuel ethanol from the US it could absorb in 2020 would be somewhere between 1 million and 3 million mt, one fuel ethanol trader said.

China is planning to implement a nationwide E10 blending mandate, commencing the rollout in 2020 in 15 provinces across the Beijing-Tianjin-Hebei region and in northeast provinces such as Heilongjiang and Jilin. READ MORE

Trade War Has Cost Americans Additional $46 Billion, Including $3.5 Billion in November 2019 Alone (Tariffs Hurt the Heartland)

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