China’s Fuel Ethanol Industry Expansion Accelerates?

China’s economy suffered the depression in the past several years, and officially fell into the so-called “new-normal” stage which meant the over 10% GDP in 2000s had gone. However, the supply-side reform in 2016 receives satisfactory results, and the economic driving force enhances in 2017. In particular, the corn industry reform in China successfully reduces the corn price to the lowest level in decades, and Beijing implements a serious of policies to deal with 30 million mt of overstock corn issue. For example, even risking a trade conflict with the U.S., Beijing still built the tariff barrier by raising the ethanol import tariff from 5% to 30% at the end of 2016.

2002–2025 China’s Fuel Ethanol Output Review and Forecast

Meanwhile, as regulated in the 13^th Five-Year Plan, China’s government makes great efforts on the renewable energy development and emission reduction. As the official alternative energy for emission reduction, Beijing plans to double China’s fuel ethanol production by 2020, and maybe quintuple it by 2025.

The international crude oil has been bogged down into a stalemate of surplus for several years. Although the crude oil price survives from the bottom - USD 27/bbl in early-2015 and rises back to USD 50 level, but the expendable power for further climbing has been exhausted. USD 50 level is an awkward position for all participants in the energy industry, and the crude oil fluctuates violently, bringing unsolid future to the energy market.

As the direct beneficiary, China’s fuel ethanol industry enjoys the great profit in 2017, and their operating rate skyrockets to over 90%, twice from that in 2016. Meanwhile, a serious of new projects are put into operation, construction or planning. As reported, SDIC Guangdong Bioenergy (150kt/a) and Shandong Fuen Biochemical (120kt/a) plan to enter the commercial production within 2017, and many other projects also accelerate the progress, such as Jiangsu Lianhai Biotechnology (200kt/a) and Kellin Chemicals (Zhangjiagang) (100kt/a).

Many new projects are also planned on the way. Inner Mongolia Shiqi Group’s 300kt/a fuel ethanol project initiated on Feb 15, 2017. It was planned to start the construction in June 2017, and put into use before the end of 2018. SDIC set up a project in Liaoning Tieling for a new 300kt/a corn-based fuel ethanol production, and the project was estimated to initiate within 2017.

China’s fuel ethanol industry developed very slowly in the past 15 years from the birth. As of the end of 2016, China’s fuel ethanol capacity was only 2,580kt/a, and the annual output was only 2,060kt/a. However, the blowout of the industry is coming. According to the statistics from SCI, the under-construction and proposed capacity is 3,140kt/a, and the target of 5,000kt/a fuel ethanol annual output in the 13^th Five-Year Plan is likely to be accomplished within 2020, theoretically.

However, turbulence exists. The carbon emission efficiency issue between the fossil and renewable energy, the food safety issue, the competition from the low-priced refined oil, the diplomatic tension on the imports, etc., all those issues and problems continue to faze the fuel ethanol industry in China and the worldwide. The environmental protection supervision may help, but China’s fuel ethanol enterprises may also face the capital deficit problem. Henan Tianguan Group had ambitious plans on expansion, however, they failed because of the capital chain break.

In conclusion, China’s fuel ethanol industry has a promised future, or more precisely, quadrupling in ten years, and becomes the bellwether of China’s renewable and clean energy industry. However, there is still a long and thorny way to go through all the challenges from agricultural structure reform, geopolitical conflicts, competitive power in the global market, energy generation upgrade in the national economy, etc. In a short term like in one to two years, China’s fuel ethanol output will remain largely stable, because all those mentioned projects need time to be built. The fuel ethanol supply is likely to be short in China, and the China’s fuel ethanol import window may reopen.

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