China Ethanol Status and Prospect
Introduction: China's ethanol industry showed divergent development trends in 2025. Traditional fermentation-based ethanol has seen declines in both capacity and output, while emerging synthetic industrial ethanol has experienced growth in both areas. On the demand side, consumption in the white spirit and gasoline sectors has decreased, while consumption for chemical purposes has increased. However, due to declining profits in downstream industries, there is a stronger inclination to reduce costs, leading to a contraction in edible ethanol consumption and an increase in industrial ethanol consumption. The future development of the ethanol industry faces both opportunities and challenges. The consolidation of fermentation-based ethanol production is likely to accelerate. At the same time, although synthetic industrial ethanol offers stronger growth prospects, the sector will also face intensifying competition, which could ultimately spur consolidation among downstream industries.
In 2025, China's ethanol industry continued the growth trend in total capacity observed since 2023, though performance varied across different production processes. The capacity and output of fermentation-based ethanol, both for edible and fuel use, declined, while those of synthetic industrial ethanol increased. As of the end of August 2025, SCI data showed that China's total ethanol capacity reached 19,749kt/a, an increase of 73kt/a compared to 2024. Fermentation-based ethanol capacity was 16,735kt/a, and synthetic industrial ethanol capacity reached 3,014kt/a, reflecting a decrease of 445kt/a and an increase of 518kt/a, respectively, from the end of the previous year. This divergence in supply highlights new industry dynamics. Affected by prolonged operational losses and the return of rising corn prices in 2025, producers of fermentation-based ethanol have adopted a more rational approach. Rather than focusing solely on expanding market share, companies are placing greater emphasis on long-term sustainable development. In addition, the fermentation-based ethanol sector faced multiple challenges in 2025. In contrast, industrial ethanol, with its lower production costs and more competitive pricing, gained broader application across downstream sectors, driving increased supply.
In 2025, downstream demand for ethanol across different sectors in China also showed divergent trends. Based on the monthly apparent consumption of ethanol in China during the year, only May, July, and August recorded higher consumption compared to the same period last year. Demand from the white spirits sector continued to decline, while certain chemical intermediates, such as ester products, still demonstrated a growing demand for ethanol. Conversely, consumption of fuel ethanol in the gasoline blending sector decreased. This divergence in downstream industry performance was primarily influenced by weaker-than-expected end demand. However, exports of some downstream products maintained a growth trajectory. Another notable trend was the overall decline in profitability across downstream sectors in 2025, which affected both purchasing patterns and price negotiations for ethanol. For instance, ethyl acetate, the largest downstream application of ethanol in the chemical sector, recorded an average production loss of RMB 180/mt from January to August 2025, according to SC. This represents a widening loss of nearly RMB 38/mt compared to the full-year 2024 figure. Another significant example is ethyl methyl carbonate, which faced almost continuous losses in the first half of the year due to pronounced oversupply and high finished product inventory levels. Although its ethanol consumption increased slightly, procurement was delayed due to margin pressure.
In terms of prices, the average annual price of ethanol in China in 2025 was lower than that of the previous year, although the price spread between coal-based ethanol and fermentation-based ethanol narrowed. From January to August 2025, the average prices of 95% ethanol and 99.9% ethanol produced via fermentation in Northeast China were RMB 5,353/mt and RMB 6,060/mt, respectively, down by RMB 557/mt and RMB 555/mt compared to the full-year 2024 figures. Based on the price of 95% ethanol in eastern Heilongjiang, June 2025 marked the highest level since December 2024, driven primarily by rising corn prices. At the same time, production losses in the first half of the year, caused by ethanol and by-product prices rising slower than costs, led to reduced output in the corn ethanol industry, which in turn provided some support for fermentation-based ethanol prices. From a cost-pass-through perspective, pressure accumulated gradually downstream. In 2025, there was a strong incentive across industries to reduce costs, leading to expanded application of lower-cost coal-based ethanol. The price spread between coal-based ethanol and fermentation-based ethanol in East China narrowed significantly. For most of 2025, coal-based ethanol was priced higher than 95% ethanol but lower than 99.9% ethanol. Compared to 2024, coal-based ethanol producers gained greater pricing power in 2025.
The future development of the ethanol industry will largely depend on two factors: cost competitiveness and companies’ resilience to risk. As product quality differences diminish and the market matures, cost has become the core factor determining the competitiveness of different production routes. Therefore, the long-term trend for synthetic and fermentation-based ethanol will hinge on the relative cost competitiveness of coal versus corn. The principle of “not competing with people for grain” remains a red line that limits the expansion of grain-based fermentation ethanol. Unless grain prices fall substantially, synthetic ethanol will maintain a cost advantage. In the short to medium term, consolidation in the fermentation-based ethanol industry is expected to continue. Market saturation across ethanol product specifications will also lead to a gradual narrowing of price differences between grades. While small-capacity producers are often seen as the first to exit during industry consolidation, financial strength may now serve as a new benchmark in this process. Companies experiencing prolonged losses and increasing financial difficulties are likely to be phased out.
In the long run, growing entrants in the synthetic ethanol sector will intensify competition within the industrial ethanol market, especially in the cost-advantaged Northwest China region. As of the end of August 2025, China had approximately 10 synthetic ethanol producers in routine operation. Proposed and under-construction projects are increasingly concentrated in Shaanxi and Xinjiang. Due to abundant and low-cost coal and gas resources, Northwest China is expected to become another core production base for ethanol after 2027. However, the region is far from major consumption areas, meaning future sales will heavily rely on efficient road logistics. Moreover, as oversupply in the ethanol industry becomes more pronounced, pressure will gradually be passed down to downstream sectors. Extending the industrial chain will be a major trend for synthetic ethanol producers. Although downstream markets are also saturated, the lower production cost of synthetic ethanol means these producers have a competitive edge in downstream expansion compared to traditional downstream producers. Therefore, the technological shift in ethanol production will not only reshape the ethanol industry itself but also drive consolidation in downstream sectors.
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