Jul Ethanol Price Kept Falling on Multiple Factors
From H2 of May, China’s edible and industrial ethanol price kept falling, and the inventory increased. In July, the feedstock price dropped, weighing down the ethanol price. In the short term, the cost may trend down, and it takes time to consume the inventory, so it’s estimated that the ethanol price may decline slowly.
In July, China’s edible and industrial ethanol prices continued the downtrend amid the declined supply, demand and costs. Taking the price of 95% ethanol in northern Jiangsu as an example, as of July 22, the price fell to RMB 6,950/mt (self-delivered & tax included), down 7.19% from May 20.
The ethanol output exceeded 600kt both in May and June. Although the output showed a downtrend in July, the weak demand weighed down the price. According to SCI, China’s edible and industrial ethanol output was 607.2kt and 628.8kt in May and June respectively. It’s estimated the output will decline to around 550kt in July. The output in June touched a record high from February 2021, while the downstream demand remained sluggish from June, especially the ethyl acetate industry. The gross profit of the ethyl acetate industry dropped rapidly from June with a monthly average profit loss of RMB -227/mt, leading to frequent production reduction. Affected by the supply and demand, the inventory of the ethanol industry showed an uptrend and it reached 210kt by the end of June, which was the highest level in the recent ten months. It’s estimated that the inventory may increase in July M-O-M.
In July, production cost of ethanol showed a downtrend, which may continue in the medium and short term. The output of corn-based ethanol and cassava-based ethanol accounted for over 90% of the total ethanol output, and the price of ethanol was highly related to that of feedstock. The corn-based ethanol producers started to suffer profit losses when downstream demand entered a slack season, and the operating rate declined rapidly. Both the futures and spot prices of corn trended down. The feedstock purchasing prices at corn-based ethanol producers in Jilin fell to RMB 2,680-2,710/mt as July 22, which means that the production cost of corn-based ethanol declined by RMB 105/mt without considering the by-products. Although the cassava slice inventory in Southeast China was limited, the buying appetites declined after China’s cassava-based ethanol production faced profit losses. In addition, the changes in exchange rate accelerated the decline in cassava slice prices. As of July 22, the price was $272-275/mt (FOB Thailand), down $12.5/mt from the beginning of the month, which means the production cost of corn-based ethanol declined by RMB 250/mt.
The cost may continue the downtrend, while it takes some time for the demand to recover, the ethanol price may continue to fall in the medium and short term. Considering the changes in exchange rate and China’s profit losses of ethanol production, the buying appetites may remain tepid, and the price may trend down. The sales of downstream chemical products may underperform, and the demand from the food and beverage industry may remain in the slack season. Meanwhile, unit shutdowns and restarts will be seen, and large-scale producers will maintain their sales. It’s estimated that the price may continue to decline in the medium and short term.
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