The US Department of Agriculture (USDA) sees robust EU demand driving China's biodiesel output higher by around 50pc in 2021, while a modest uptick in fuel ethanol use will need imports to meet demand.
Biodiesel production is forecast to rise for a third consecutive year to its highest-ever volume of 1.7bn litres (1.5mn t) in 2021, up by 54pc from 2020. Consumption of used cooking oil feedstock will rise by 17pc on the year to 1.65bn l to fuel this expansion. Europe-bound biodiesel exports are expected to rise by 21pc from 2020 to hit a new record high of 1.25bn l, though hydrotreated vegetable oil sales, which are not currently tracked because of tariff code uncertainties, may push actual export volumes higher.
A lack of mandates or incentives beyond Shanghai's pilot B5 biodiesel programme continues to limit domestic biodiesel consumption, with growing government policy momentum behind decarbonisation efforts in the past year failing to seriously consider a role for the biofuel. China will use 564mn l on the road for the year in the USDA's forecast, up from 522mn l in 2020 but less than half of the volume consumed in 2019 when weaker palm oil costs last made discretionary blending feasible. A marginal expansion in the diesel pool will keep the on-road biodiesel blend rate flat on the year at 0.2pc.
Ethanol woes
Imports may be required to fill the gap in fuel ethanol demand for the remainder of 2021 as consumption rises with heightened government scrutiny of regions piloting 10pc ethanol-blended gasoline (E10)while domestic output contracts, according to the USDA.
Fuel ethanol use is forecast to rise by 9pc on the year to a new peak of 4.2bn l, nudging the blend rate in gasoline up to 2.1pc from 2pc last year. Meanwhile, tight corn supplies and soaring prices for the feedstock are expected to depress domestic output of the fuel to 3.4bn l, lower by 11pc from 2020.
Imports are forecast to expand more than 10-fold on the year to 800mn l in 2021 to cover the shortfall in domestic supplies, with almost all shipments from the US despite lingering trade war-era tariffs of 70pc, or 45pc for importers granted tariff exclusions by China's finance ministry. China may have approved further tariff waivers on some volumes to pry open the import arbitrage in view of the domestic supply shortfall, the USDA said, but this could not be corroborated with market sources.
China's National Energy Administration urged gasoline retailers in February to guarantee sales of ethanol blends in regions already piloting E10. This prompted marginal demand growth this year, even after plans to extend E10 mandates nationwide were reigned in during 2020 following a drawdown in corn stocks two years earlier.
Corn prices rallied to record highs in the first half of this year, reducing average ethanol margins to -716 yuan/t (-$110/t) in January-June from an already dire -Yn590/t during the same period in 2020, according to USDA estimates, solidifying the move away from a further E10 expansion. Nationwide refinery capacity use is forecast to drop to a record low of 42pc during 2021 as a result, down from 57pc last year. But market participants counter that ethanol margins have remained positive for factories near China's northeastern corn belt, and softening corn prices, together with China's bumper autumn harvest, are likely to boost profits further in the fourth quarter.
