Escalating trade disputes threaten to disrupt US ethanol exports, even as lower corn prices strengthen profit margins.
US ethanol producers have become increasingly reliant on rising export demand to maintain growth as domestic demand has plateaued. Domestic ethanol consumption is not expected to increase in 2018 compared to 2017 levels, according to the latest Short-Term Energy Outlook released by the US Energy Information Administration (EIA). Consumption is forecast to rise by 10,000 b/d to 950,000 b/d in 2019.
Shipments in the first five months of 2018 have risen nearly 30pc when compared to the same period in 2017, according to US Department of Agriculture (USDA) data. Export growth is likely to be stifled in the second half of 2018 amid ongoing changes to US trade policy and threats of retaliatory measures from global trading partners.
China increased tariffs on ethanol imports from the US by an additional 25pc to 70pc in June, which effectively ended further shipments to the country.
Brazil, the largest foreign consumer of the US blendstock, has considered eliminating an exemption for the first 2,600 b/d of imports each quarter from a 20pc tariff in response to US tariffs on steel and aluminum.
US exporters have sought new outlets amid a wave of protectionist policies. Exports to South Korea in 2018 have risen by 84pc year-to-date compared to the year prior.
In India, the government has reduced a tax on goods and services on ethanol to boost blending and meet a state mandate of 10pc blending. Exports to the country have fallen by 42pc year to date compared to 2017.
A Mexican court has lifted a restriction on blending gasoline with 10pc ethanol on most of the county. The three largest cities have been excluded from the ruling but ethanol exports to the country have grown 15pc year to date.
It is unclear whether exports will rise in the short-run amid lack of market penetration.
Rail logistical issues have added further complications to exporting ethanol as biofuel shippers have seen prices in the northeast increase nearly 5pc since 25 June. Market participants have complained of slow turnaround times and railcar shortages at production facilities. Already-congested terminals have had to deal with longer trains as major railroads seek to cut costs.
It is not clear if rail issues will be resolved in the short-run as the rail industry enters peak demand season this autumn.
Chinese tariffs on US corn have provided some relief to ethanol producers as the ethanol crush spread margin has risen by 26¢/bushel since the announcement on 16 June of a 25pc levy by the Chinese government, which took effect on 6 July. Ethanol production margins reached the highest level since November 2017 at 62¢/bushel, and margins averaged 60¢/USG in 2017.
