Faltering 10pc ethanol blending (E10) because of tight and high-priced corn feedstock is fuelling doubts about China's transport decarbonisation strategy.
State-controlled Sinopec's Jiangsu subsidiary will halt sales of #92 ethanol blended gasoline from November, citing inadequate ethanol supplies because of lower production rates upstream this year. Fuel ethanol producers have reduced run rates to an estimated 40-50pc of 5.2mn t/yr nameplate capacity because of dwindling domestic feedstock supplies and higher import costs.
Feedstock supply concerns have lifted fuel ethanol offers up to 6,200 yuan/t ($926/t) ex-factory, according to buyers, far higher than the price of 93 Ron gasoline that retailed yesterday at Yn5,594/t in central China, according to Argus data. E10 once blended must retail at 91.1pc the price of gasoline, according to a government decree, preventing gasoline retailers from being able to recover higher costs. Oil companies that can possibly avoid stocking up are choosing to hold out in hope of upcoming mandate changes, or may be looking to relieve themselves of the burden altogether.
Jiangsu is among several provinces — along with Guangdong, Hubei, Inner Mongolia, Shandong and Shanxi — that only partially implement E10 mandates, giving suppliers more wiggle room to cut the product because of unfavourable economics. Sinopec Jiangsu is the only subsidiary in such a province to announce the halting of E10 sales.
In regions with fully mandated E10, limited domestic output may be forcing gasoline suppliers to look further afield and accept losses to secure ethanol supplies. To the confusion of many market participants, a 30,000t cargo of fuel ethanol will ship from New York to an undisclosed port on the Yangtze river in China on the Ardmore Defender, loading between 1-10 November. The transaction will have left little room for profit, with ethanol valued between $434/t and $524/t on the Chicago Board of Trade throughout September and October and a 45pc import tariff facing the US cargo.
Beijing had already reigned in E10 programme ambitions because of dual concerns about wavering domestic supplies and crippling tariffs under the US-China trade war. But President Xi Jinping's surprise September announcement that China aims to be carbon neutral by 2060 has rekindled interest in and expectations about China's decarbonisation strategy.
Ethanol's woes may strengthen transport electrification's chances as China's favoured pathway to carbon neutrality. Recent transport policies have focused on promoting new energy vehicles (NEVs) including full electric, hybrid and hydrogen fuel cell cars. Market disruptions because of Covid-19 saw the central government extend purchase tax exemptions and subsidies to the end of 2022 for NEVs that had been due to expire this year from January 2021.
But Beijing will likely face headwinds in maintaining momentum in adoption of NEVs after subsidies are phased out in 2022. January-September NEV sales fell by 17.7pc from a year earlier to 677,000 while subsidies were paused, according to data from China's automotive manufacturers association CAAM.
