China's New Ethanol Use Mandate Will Create Opportunities for U.S. Exports
By Sampath Jayasinghe
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
http://www.decision-innovation.com/
November 2017
On September 13, 2017, the Chinese government proposed an implementation plan on the Expansion of Ethanol Production and Promotion for transportation fuel. The proposed plan is intended to achieve nationwide use of 10 percent ethanol (E10) by 2020. Currently, there is no ethanol blending mandate on the national scale in China, but some provincial governments have adopted ethanol blend requirements at varying degrees. In this report, we examine the current situation in the Chinese fuel ethanol market and some potential impacts of China's policy announcements on the U.S. ethanol industry. This report is mostly based on the recent Global Agricultural Information Network (GAIN) report published by USDA Foreign Agricultural Service (USDA-FAS).
China is the fourth largest ethanol producer in the world behind the United States, Brazil, and European Union. Chinese total ethanol production was 5.015 billion gallons in 2016. Ethanol for potable beverages and other usages accounted for approximately 57 percent (2.851 billion gallons) of total ethanol production. Ethanol for other industrial chemicals accounted for approximately 27 percent (1.33 billion gallons) of the total ethanol production. Fuel ethanol accounted for 17 percent of the total Chinese ethanol production in 2016.
Fuel Ethanol Production
Total Chinese fuel ethanol production in 2016 was estimated at 833 million gallons as shown in Figure 1 (USDA-FAS, 2017) The U.S. fuel ethanol production in 2016 was 15.3 billion gallons, compared to 7.2 billion gallons in Brazil, and 1.8 billion gallons in the European Union. Canada stands in fifth place at 477 million gallons.
Chinese fuel ethanol production in 2017 is estimated at 938 million gallons, up about 13 percent from 2016 as seen in Figure 2 (USDA-FAS, 2017). The fuel ethanol production in 2018 is forecast at 1.043 billion gallons, up approximately 11 percent from the 2017 estimate. Major feedstocks for ethanol production are corn, cassava, and molasses from either cane or beet sugar. Approximately 70 percent of ethanol is produced from corn, 25 percent from cassava and the rest is from molasses.
Table 1 shows the Chinese ethanol production capacity from 2009 forward. There were only 10 production plants in 2016. Current estimates show there are 11 in 2017. Total production name plate capacity is at 1.11 billion gallons in 2017, indicating only 85 percent of the total capacity is being utilized.
Table 1: Chinese Ethanol Plants and Capacity 2009-2018 (Million Gallons)
Source: USDA-FAS, note: 2017 is an estimate and 2018 is a forecast.
Fuel Ethanol Consumption
China is the world’s largest automobile market in the world. According to USDA-FAS (2017), the Chinese national civilian vehicle fleet reached 194.4 million, an increase of 12.8 percent from 2015. Out of the 194.4 million vehicle fleet, privately owned passenger vehicles accounted for 165.6 million, an increase of 15 percent from 2015. Vehicle sales are forecast to grow 9 percent in 2017 over 2016 due to increased consumer demand.
Table 2: Chinese Fuel Ethanol Blending Rates 2009-2018 (Million Gallons)
Source: USDA-FAS, note: 2017 is an estimate and 2018 is a forecast.
Eleven provinces and 40 local municipal councils in China have implemented fuel ethanol blending mandates in regular gasoline consumption, though the actual blend rate in these markets varies from 7 to 20 percent (Beckman and Nigatu, 2017). Table 2 shows the fuel ethanol market penetration from 2009 forward. The Chinese fuel ethanol consumption is estimated at 936 million gallons in 2017, compared to 1.06 billion gallons in 2016. 2018 fuel ethanol consumption is forecast at 1.04 billion gallons, an increase of approximately 11 percent from the 2017 estimate. The fuel ethanol blend rate is forecast at 2.3 percent, compared to 2.2 percent in the 2017 estimate.
Fuel Ethanol Imports from the U.S.
Figure 3 shows the U.S denatured fuel ethanol exports to China from 2013 to 2016, and a comparison of the January-September period of 2016 to 2017. In 2016, the U.S. denatured fuel ethanol export to China was 158.4 million gallons, compared to 56.9 million gallons in 2015. During the 2016 January-September period, the U.S exported 131.7 million gallons of denatured fuel ethanol to China, but during the same period in 2017, U.S. exports decreased significantly to a little over 1,000 gallons. This significant drop in exports is due to high tariffs imposed by China to curb imports. Since January 2017, China increased the import tariffs on U.S. denatured fuel ethanol to 30 percent from 5 percent in previous years.
China will have difficulty meeting its proposed ethanol mandate with domestic production. In 2016, total Chinese gasoline consumption was 43.014 billion gallons. Theoretically, in order to attain the E10 blending requirement, China needs approximately 4.3 billion gallons of fuel ethanol assuming 2016 numbers. This implies China needs 1.43 billion bushels of corn feedstock. China has to significantly boost its fuel ethanol production in the next few years. However, even if existing capacity is fully utilized, China will be well short of meeting the E10 blending goal. China will have to import either fuel ethanol or corn from foreign countries to realize the proposed blending mandate. This could lead to a larger export market for U.S. corn farmers and ethanol producers in the near future.
References
USDA-FAS (Foreign Agricultural Service), 2017. China Biofuels Annual 2017. Global Agricultural Information Network (GAIN) Report Number: CH17048. September.
Beckman, J. and Getachew Nigatu, 2017. Global Ethanol Mandates: Opportunities for U.S. Exports of Ethanol and DDGS, USDA-ERS (Economic Research Service), Report Number: BIO-05, October.
Recommended Citation
Jayasinghe, Sampath. 2017. “China’s New Ethanol Use Mandate Will Create Opportunities for U.S. Exports." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. November.
