China is still two years away from implementing its E-10 mandate. But that hasn’t stopped the nation from dramatically ramping up its imports of U.S. ethanol. As it turns out, another factor appears to be driving the surge of Chinese buying. Let’s dig into it.
In February, Chinese imports of U.S. ethanol hit their highest levels since May 2016. The uptick comes at a time that most traders are fretting over the possibility of increased restrictions for agricultural commodities to the Chinese market. The 197,652 cubic meters of ethanol in February is eye-popping, and the latest sign that foreign exports will be critical to achieving their lofty mandate targets.
The number was a 64% jump from January. It was also a massive increase from the same month in 2017. Last February… China bought a whopping 9 cubic meters of U.S. ethanol thanks to a 2017 tariff that cost 30% more for imports.
Bloomberg reports that Chinese firms have ordered 600,000 tons of ethanol to blend into gasoline during the first half of the year. The news agency cites data from the China Alcoholic Drinks Association, an interesting name for an organization that oversees the nation’s ethanol industry and corresponding biofuel mandate.
Many pundits believe that China would ramp up corn imports and engage in the fuel processing themselves. I don’t see how it’s going to be even close to possible for them to bring that much ethanol production on line in the next 20 months. The prediction that foreign ethanol shipments would increase is coming to fruition.
But there is an important element to the “why now” in the surge in imports. Right now, there is a risk that China might slap a 15% tariff on U.S. ethanol as trade tensions accelerate between the two countries.Once again, this tariff is a bad idea, as it will only drive up the cost of fuel on Chinese drivers across the country. The alternative is that Brazil – which is ramping up corn ethanol production in Mato Grosso – becomes a major exporter of ethanol to China.
However, it’s worth noting that Chinese corn prices are so expensive right now that it’s actually cheaper to pay tariffs and taxes on imports and just bring ethanol into the country. We’re looking at this as Noise for now. But if we start to see a prolonged uptick in ethanol demand, regardless of tariffs, this could be a solid factor for U.S. corn production in the future.
China Imports of US Ethanol Surge
(Bloomberg) — China’s purchases of ethanol from the U.S. climbed, with imports in coming months dependent on the Asian country’s plan to impose extra import duties that could wipe out the margin that’s seen buying surge this year.
Imports of ethanol from U.S. totaled 189,035 cubic meters in February, the highest since May 2016, according to Chinese customs data. Purchases had slumped in 2017 after China imposed a 30 percent tariff on imports from the U.S.
China on Friday announced plans for reciprocal tariffs on $3 billion of imports from the U.S., including denatured ethanol, in response to President Donald Trump’s levies on Chinese metal exports. Chinese companies have ordered more than 600,000 tons of ethanol from the U.S. for blending into gasoline in the first half of the year, according to the China Alcoholic Drinks Association, which oversees the fuel ethanol industry. China is expanding its ethanol mandate nationwide by 2020.
Imports with tariffs and taxes were between 500 yuan ($80) to 600 yuan per metric ton cheaper than domestic ethanol due to expensive Chinese corn prices, according to the association. Corn futures on the Dalian Commodity Exchange are about 3 percent higher than a year ago and touched a two-year high in March.