Hu Yanbing, Zhao Zhimin, Shenyang SYRICI Testing Co., Ltd.

Production analysis and forecast

China’s fuel ethanol capacity growth slowed down significantly in 2020 on the back of the sluggish demand and increasing cost. The growth, however, was finally maintained after SDIC Hailun and Jiangxi Yufan launched their plants in December. In 2020, China's fuel ethanol capacity increased by 400 000 t/aover 2019, reaching 4.695 million t/a. China's fuel ethanol capacities through 2016 to 2020 are shown in Chart 1.

Chart 1 China's fuel ethanol capacities, 2016-2020

China’s fuel ethanol output declined in 2020 due to production losses, leaving the whole year’s production at 2.74 million tons, down 5% from 2019. With demand constrained after the ethanol gasoline promotion policy turned cautious, the construction of planned fuel ethanol capacities slowed down significantly and some even have been applied to edible and industrial sectors. As the raw materials remained high priced, the fuel ethanol capacity will continue to grow at a slow pace in 2021. 

The main reasons for the decrease in fuel ethanol production: 1) China’s fuel ethanol producers, under the influence of Covid-19 in 2020, transferred some of their lines to produce alcohol and other anti-virus products; 2) traditional ethanol consumption and export volume increased in 2020 due to the pandemic at home and abroad, and the prices thus kept rising; meanwhile, ethanol gasoline consumption became slow and the cost remained high, resulting in profit loss of producers and accordingly leading them to adjust production direction to reduce the output of fuel ethanol; 3) from the perspective of import and export, China's fuel ethanol imports basically bottomed out during April to July 2020, and the exports increased at the mean time to fight the COVID-19 globally.

China’s fuel ethanol producers in 2020 are shown in Table 1, and some of the fuel ethanol projects under construction, proposed and planned are shown in Table 2.

As Table 2 shows, most of China’s new fuel ethanol projects are in the proposed or preparatory stage, not yet started after the foundation stone was laid. One reason is that the relevant procedures have not been completed and the funds are not in place. The other reason is, in the absence of further clarification on the policy of ethanol gasoline, new comers are worried about the sales of the product, which would affect the recovery of capital flow. Affected by the COVID-19 and the decline of international oil prices, the pace of achieving full coverage of ethanol gasoline in China slowed down in 2020. Currently, the biggest problem affecting the promotion of ethanol gasoline is the tightening of raw material supply. There was sufficient inventory of aged grain, which, however, was rapidly consumed in 2019, and there was greater uncertainty about the supply of fuel ethanol. Thus, raw material supply problem makes the nationwide ethanol gasoline promotion uncertain.

The trend that the fuel ethanol supply will be dominated by SDIC and COFCO in the future is becoming increasingly clear, and as an intermediate product of energy and agriculture, it will be more difficult for private companies to enter the fuel ethanol field. From the perspective of the current national layout and long-term development direction, it is very necessary for food security, the consumption safety of the aged grain industry, and the control of core resources.

Market analysis and forecast

China’s fuel ethanol consumption increased significantly through 2017 to 2019 at the heels of the promotion of ethanol gasoline. In 2020, due to the impact of COVID-19, the consumption of edible and industrial ethanol increased significantly, and the amount of antivirus ethanol rose also. The domestic consumption of fuel ethanol will continue to drop in 2021. As COVID-19 is subduing, the antivirus alcohol consumption will reduce, the Baijiu liquor consumption will pick up, and overall downstream demand will decrease in 2021.

The major raw materials for fuel ethanol in China are food crops like corn, whose prices hit a high of recent years. Accordingly, the cost of fuel ethanol production is gradually rising.

Domestic fuel ethanol supply was tight in August and September 2020, and Sinopec Xuzhou in Jiangsu proposed to substitute fuel ethanol with 92# motor gasoline in the regions where the fuel ethanol was supplied. Then Suzhou (Anhui Province) and Linyi (Shandong Province) also started or prepared to stop supplying ethanol gasoline. The development of fuel ethanol relies on state policies, and a temporary suspension does not mean that the development will stop. However, it is necessary to solve the problems of aged grain and energy through new technologies, hence provide convenience and ensure food energy security. Under the situation of overly high corn prices, the development of non-grain ethanol becomes a must. Breaking through the bottleneck of raw materials, reducing the costs, and protecting the environment are the issues that must be considered in fuel ethanol’s future development.

China’s ethanol gasoline demand increase will mainly come from the market growth in the original promotion area and the demand growth in the new market area. At present, provinces with large gasoline consumption such as Guangdong, Sichuan and Zhejiang still have not promoted ethanol gasoline, while Jiangsu, Hubei and Shandong are only partially using ethanol gasoline. It is obvious that the future demand for ethanol gasoline in China is large.

Import & export analysis and forecast

In 2020, China’s ethanol import volume remained at a low level of 55 000 tons, while the export amount gained hugely to 294 000 tons.

Imports: modified ethanol imports accumulated to 50 000 tons, mainly from Indonesia, the United States, Brazil and South Africa, with these four accounting for 99.9% of the total imports of modified ethanol; unmodified ethanol imports accumulated to 5 000 tons, mainly from Vietnam. Chart 2 shows the comparison of China’s ethanol import volumes in 2019 and 2020.

Chart 2 China’s ethanol import volumes in 2019 and 2020

In the past five years, China’s highest import volume was 828 000 tons in 2018, with 2019 and 2020 having only 83 000 tons and 55 000 tons respectively. Such fluctuation was mainly caused the arbitrage between domestic and import markets. The domestic ethanol market prices were on an upward trend in 2020, while the cost support from raw materials like corn may exist for a longer period in 2021, so, under high domestic ethanol prices, more imports would be expected to come into China. 

Exports: unmodified ethanol exports cumulated to 277 000 tons, accounting for about 94% of the total exports; modified ethanol exports cumulated to 17 000 tons. Chart 3 shows a comparison of the monthly export amounts of ethanol in 2019 and 2020.

Chart 3 China’s monthly export amounts of ethanol in 2019 and 2020

    China exported unmodified ethanol to 90 countries/regions in 2020, with the top three being South Korea (74 000 tons), Turkey (35 000 tons), and Spain (22 000 tons). Although the modified ethanol products were also shipped to 34 countries/regions, the export volume was relatively small, with the top three being Taiwan, Australia, and Thailand. The largest export shipment did not exceed 3 000 tons.