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Chinese corn processors bet on bio-fuel

Chinese corn processors are betting on bio-fuel production despite recent government curbs on expansion of the industry due to surging grain prices.

Due to worries of grain supply shortages, the Chinese government last month halted approval of new projects that process corn into ethanol, to be used for car fuel.

However, huge profits have lured investors and local governments to continue preparing new projects, with an annual output of more than 10 million tonnes of fuel ethanol planned, almost ten times the current 1.02 million tonnes.

The government estimates that ethanol addition to gasoline will account for half of domestic gasoline consumption by 2010, which is 2.5 times the current percentage.

Meanwhile, some processors dodge policy restrictions by claiming to make alcohol, which can be conveniently turned into fuel ethanol once the government eases limits.

More corn for ethanol
China's corn processors are expanding their production capacity of alcohol by an estimated 1.6 million tonnes per year, according to China National Grain and Oils Information Centre.

The government has urged development of bio-fuels with non-grain crops, like sorghum and cassava, amid concerns of grain supply and price stability. However, enterprises, especially in corn-rich northeast China, still favour corn processing for easier access to raw materials, low costs and mature technologies, while local governments tend to approve new projects to draw investment.

More than 23 million tonnes of corn were processed into ethanol and other products of industrial use last year, an increase of 84% from 2001, while the output of corn only grew by 22%.

China will become a net corn importer in the next two years, according to research by the Dalian Commodity Exchange and the National Grain and Oils Information Centre.

Expanding industrial demand, along with increasing need for corn by livestock and the reluctance of corn growers to sell in expectation of higher prices, contributed to a 6.8% rise in the price of corn in 2006.

 

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