Process Management

News 221 views last update:6 Aug 2012

Costly corn stops Chinese ethanol making

Ethanol mills in China have suspended production due to the high cost of corn coupled with low ethanol prices due to oversupply in the market.

"As current ethanol prices are at around $550 to $565 per tonne, companies are losing $52 to $65 per tonne of production," Yu Xiurong, technology director with Jilin Tuopai Agricultural Products Development said. Yu also attributed the losses to oversupply in the market due to excess production capacity.

The Jilin based company, with annual production capacity of 50,000 tonnes of edible ethanol and 20,000 tonnes of premium edible ethanol, began suspending production in May.

China's ethanol prices soared to $760 per tonne from $525 per ton between 2005 and 2006, driven by export demand. However, ethanol prices fell sharply following a cut in ethanol export tax rebates in December 2006.

China's subsidy for ethanol mills was reduced from $270 to $170 per tonne in the past three years. The subsidy might be eliminated in 2008, according to an industry analyst.

Tight corn supply
In the first five months of the year, average corn prices in China rose 23% year-on-year, according to the National Development and Reform Commission.

However, tightness in the current corn market is mainly because 30% of China's corn output is being hoarded by corn traders and only a small amount is flowing onto the market. The normal stockpile level for this time of the year is around 20%.

The new harvest season, starting in July/August probably will ease the market and ethanol producers might resume production again.

No new projects
State-run Xinhua news agency quoted a high-level Chinese official as saying that China will not approve new grain-based ethanol fuel projects due to grain supply concerns, and that companies currently engaged in corn-based ethanol projects will be ordered to gradually shift to non-grain ethanol projects.

The new government regulations may hamper market confidence although ongoing production suspensions will still only have a limited impact on corn prices.

The impact of ethanol on domestic corn prices is limited, as corn consumption from ethanol accounts for less than 10% of total fresh supply. Corn prices are mainly affected by the demand from the livestock feeding industry, which accounts for nearly 70% of the supply.

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