US ethanol exports to China poised to collapse with 30% tariff

US ethanol exports to China, which were at an all-time high in 2016, are likely to dry up in the coming year thanks to a 30% import tariff, industry sources told Platts.

“You’re not going to get the trade flow to happen,” an analyst at a biofuels trading company told the energy market information provider. “You’re not going to be able to export there.”

China was one of the top buyers of US ethanol in 2016. The US exported a total of 678.1 million litres of ethanol to China through November, according to US Census Bureau data. Nearly 100% of that volume was fuel-grade ethanol at 677.7 million litres.

But with the higher tariff, exports to China are unlikely. Another source struck a more optimistic tone.

“If US prices stay low, it may work out even with 30% import duty,” he said. He added the arbitrage might work better “in summers, after maintenance is over and Brazil is back in production.”

Ethanol imports

China announced December 23 that it would adjust tariffs on several imports, including ethanol. Ethanol imports received a tentative 5% tariff in 2016, but the 2017 tariff has been restored to 30% as of January 1, according to China’s ministry of finance.

News of the tariff immediately stifled exports to China. Some cargoes for late in the first quarter were cancelled and sources said nothing is currently booked to go to China.

“What they’re doing on ethanol and DDGS (dried distillers grains with solubles) is more about propping up their domestic corn industry than anything else,” a source familiar with US exports said earlier this week.

“They do have a domestic ethanol industry that has had fits and starts,” the source said. “They have announced that they intend to ramp those facilities back up.”

The corn industry in China is eager to increase its production, and China sees increasing import tariffs as a means of boosting the industry.

“The 2017 tariff adjustment will … encourage much-needed domestic energy raw materials to reduce imports,” the Chinese ministry of finance said in its December statement. “In order to give full play to the protection of tariffs on domestic industries, in 2017 the modified ethanol import tariff rates will be adjusted accordingly.”

Asia developed as a key demand center for US ethanol in 2016, coinciding with increased production from US plants.

US production capacity in 2016 climbed to nearly 56.5 billion litres/year, up 2.1 billion litres from 54.4 billion litres/year in 2015.

This story was originally published on Platts.