China suspends ethanol mandate, likely reducing need for US biofuel imports under trade war deal
- New programme was suspended after a sharp drop in national corn stocks and limited production capacity for the biofuel
- The US had expected China to buy large quantities of ethanol as part of phase one trade deal agreement to double imports over two years
China has suspended its plan to implement a nationwide petrol blend containing 10 per cent ethanol this year, three sources briefed on the matter said, after a sharp decline in the country’s corn stocks and limited production capacity of the biofuel.
Beijing announced in September 2017 that the national petrol supply would contain 10 per cent ethanol from 2020, part of a broad reform of its corn industry that at the time was suffering from a huge surplus.
But at a meeting in late December with ethanol producers and oil majors, China’s National Development and Reform Commission (NDRC) said it would be halting the roll-out of ethanol-gasoline supplies beyond the current handful of provinces that have already implemented full or partial blends, according to two of the three sources briefed on the meeting.
The decision was made after further study, which suggests any promotion of ethanol gasoline must be based on the precondition that food security is guaranteed
The reversal is a heavy blow to domestic producers that have built new plants, as well as biofuel exporters, including the United States and Brazil, which were looking to benefit from growing Chinese demand.
“The decision was made after further study, which suggests any promotion of ethanol gasoline must be based on the precondition that food security is guaranteed,” said one of the sources familiar with Beijing’s plan, in reference to declining grain reserves in China.
Executives from China National Petroleum Corporation Limited (CNPC) and Sinopec also attended the NDRC meeting in December, according to one of the sources. The sources declined to be named as they were not authorised to talk to the media.
NDRC, the National Energy Administration (NEA), CNPC and Sinopec did not immediately reply to requests for comment.
Six other contacts including producers, traders and analysts also said the government roll-out of the mandate had significantly slowed or stalled, with few new plants built or markets opened in the past few months.
I think the promotion has slowed. Maybe we need to wait until after 2020
“There is a big shortage of production capacity and few places have made breakthroughs” with the mandate roll-out, said Michael Mao, analyst with Sublime China Information. “I think the promotion has slowed. Maybe we need to wait until after 2020.”
Reaching the 2020 target would have required about 15 million tonnes of the biofuel annually, more than four times current output, or some 45 million tonnes of corn, which is about 16 per cent of the country’s current consumption.
The country does not disclose state grain reserve levels, but state stockpiles of corn have fallen to around 56 million tonnes from more than 200 million tonnes in temporary reserves in 2017, a government expert said in September.
