Sales of US ethanol will likely drop in China after Beijing slapped higher tariffs on the liquid - but the Chinese will eventually have to return to the overseas market to meet government targets for using the fuel, industry participants and analysts said on Monday. China said late on Sunday it will slap an extra 15 per cent tariff on ethanol imports from the United States, part of its response to US duties on aluminium and steel imports. The previous duty was 30 per cent. The tariffs, effective Monday, will neutralise cost savings from importing cheaper US ethanol versus domestic supply, said three sources that participate in the market. Ethanol, an alcohol typically produced from corn or sugar, is often mixed with petrol to reduce air pollution from vehicle emissions. “The price difference is gone. We will suspend imports for now,” said a manager at a private oil refinery, adding that he was considering turning to domestic suppliers for ethanol to blend into petrol. That is good news for domestic producers, who are already ramping up output on cheaper corn and government subsidies. “We have so much corn. We will do absolutely fine if we don’t import ethanol,” said a manager at a major ethanol producer in China. But analysts said China will probably need to resume imports to meet the government target of 10 per cent ethanol content in all petrol nationwide by 2020. China aims to turn farm waste into biofuel under ethanol plan “Demand for fuel ethanol will potentially explode in 2019 and 2020 and we won’t have enough domestic supplies by then. We might have to turn to overseas,” said Michael Mao, an analyst with Zhuochuang, a commodities consultancy based in the Chinese province of Shandong. China said last year the new ethanol mandate would boost industrial demand for corn and help clean up its choking smog. It would mean consumption of around 15 million tonnes of ethanol annually, made from 45 million tonnes of corn. China’s current ethanol production is around 2.5 million tonnes a year. It is not clear where future imports will come from. A 30 per cent duty on ethanol imports previously levied since January 2017 had already slowed a once-booming trade to a trickle. US imports had recently picked up after prices fell enough to be attractive even with the high duties. But the new tariffs will close the arbitrage again, boosting the price of US ethanol to around 6,300 yuan (US$1,003.58) per tonne after taxes, on par with domestic prices, market sources said. “There’s not a lot booked past May now and there’s a fear they are not going to book anything forward,” a US ethanol trader said of China. Chicago Board of Trade May ethanol futures fell 2.5 per cent or about 4 cents to US$1.44 per gallon, the lowest since February 9, as trade resumed after the tariff announcement. The refinery manager said prices in Brazil, the world’s top ethanol producer, are currently too high for exports to China, but could be an option in future.