H2 Jun Fuel Ethanol Price to Fluctuate Limitedly
Introduction: Since June, fluctuations in China’s fuel ethanol market prices have slowed down. In Northeast China, fuel ethanol producers were slightly more active in sales, affected by the increase in supply, and the intended negotiation prices fell somewhat. In Shandong, the supply from some sources decreased, but the high-priced supply remained sufficient, restricting upward movement. It is expected that in the second half of June, fuel ethanol prices in production and sales areas will still fluctuate slowly. As feedstock corn prices rise, the cost support in Northeast China will strengthen, but ample supply and sluggish demand may cause fuel ethanol prices to be range-bound.
Fuel ethanol prices in Northeast China edged down in the first half of June due to ample supply.
Since June, China’s fuel ethanol prices have experienced slowed-down fluctuations, with the price in Northeast China edging down. The cost of fuel ethanol rallied, but the supply growth promoted more sales willingness of major producers. Besides, the downstream rigid demand was flat, and the demand for refined oil was average as ethanol was less economically viable compared to other blending components. Therefore, the supply-demand fundamentals exerted a bearish impact on the fuel ethanol market. As of June 11, 99.5% ethanol prices in Northeast China closed at RMB 5,550-5,780/mt, a decrease of RMB 25/mt from the average closing price on May 30.
In Shandong, supportive factors materialized. The impact of planned maintenance of the plant in Shaanxi was digested in advance, and some downstream enterprises stocked up. Therefore, the market trading in early June was slow. Additionally, negotiation prices of some resources in Northeast China slipped. Therefore, with ample high-priced supply, fuel ethanol prices were range-bound in Shandong. As of June 11, 99.5% ethanol prices in Shandong closed at RMB 5,810-6,050 /mt, an increase of RMB 15/mt from the average closing price on May 30. The low-end price dropped by RMB 20/mt, while the high-end price rose by RMB 50/mt.
Since May, the demand for fuel ethanol has underperformed, but supply has grown, which was bearish for the fuel ethanol market. On the supply side, SDIC Bio-Energy (Tieling), SDIC Bio-Energy (Hailun) and SDIC Bio-Energy (Jidong) successively resumed production, which had significant impacts on the fuel ethanol market. Moreover, the adjustment in the output of some other enterprises also influenced the overall supply. By early June, the operating rate of the fuel ethanol market increased by 5 percentage points compared to early May. On the demand side, domestic gasoline demand came in short of expectations. In May, with the end of the May Day holiday, residents mainly drove for commuting, leading to a gradual weakening of gasoline demand. At the same time, crude oil prices declined noticeably, and gas stations were cautious about the replenishment and conducted basic purchases in small quantities. Although there was the Dragon Boat Festival holiday in early June, it was short, so gas stations stocked up for only holiday usage. Furthermore, the substitution of new energy for gasoline was strong. As a result, the overall gasoline demand was tepid. Additionally, China’s domestic refinery maintenance affected the output of refined oil, with intensive maintenance from March to May. In May, a relatively high number of state-owned refineries entered the maintenance season, leading to a temporary decline in crude processing capacity. Independent refineries, aside from some long-term idle units, also had some units that have not yet been restarted due to tight supply of feedstock and and poor profits.
China’s fuel ethanol prices are expected to fluctuate limitedly in the second half of June.
In the second half of June, there is an expectation for increased costs of fuel ethanol in Northeast China, but the supply will remain stable and demand is poor, resulting in limited price fluctuations. On the cost side, there may be a slight rise in corn prices at high levels as traders’ inventory in production areas of Northeast China is relatively low and the supply is stable and will hardly grow. On the supply side, overall fuel ethanol output is anticipated to be sufficient in the second half of June, with one production line at Heilongjiang Hongzhan Bioenergy and Heilongjiang Hongzhan Biotechnology each expected to remain in shutdown, while there are no significant supply fluctuations expected elsewhere. The bullish impact of the supply side on the fuel ethanol market may appear in July due to the maintenance of Heilongjiang Wanli Runda Biotechnology and Meihekou Fukang Alcohol. On the demand side, as June progresses, the peak maintenance period for domestic refineries ends, with the number of maintenance refineries decreasing, and the monthly processing loss declining sequentially. However, the operating rates of state-owned refineries and independent refineries differ, with state-owned refineries expected to enhance their operating rates while independent refineries see increased shutdowns. Apart from the overall impact of gasoline production and sales, the high price of fuel ethanol affects its competitiveness as an additive. In early June, the order volume for fuel ethanol from state-owned refineries was flat, and the purchase enthusiasm from independent refineries was average. In the second half of June, as the stockpiling for gasoline begins, the high price of ethanol in the short term will affect the enthusiasm for downstream ethanol blending. From the perspective of crude oil prices, on June 13, geopolitical influences caused crude oil prices to rise rapidly, strengthening the support for gasoline prices from the cost side, so gasoline prices were predicted to go up. Additionally, prices for other blending components also showed a bullish expectation. This was expected to improve the economic feasibility of adding ethanol components.
In summary, fuel ethanol prices in Northeast China are likely to stabilize in the second half of June. The cost will continue to support fuel ethanol prices, while the sustainability of rising crude oil prices remains to be observed. The refined oil market is actively pushing prices upwards, but the follow-up in end demand at high prices is insufficient. Currently, the market is primarily driven by unilateral bullish sentiment. As for fundamentals, the supply-demand situation in the fuel ethanol market is unlikely to improve quickly in the second half of June, with producers expected to stabilize their quotes. In a situation where supply exceeds demand leading to inventory accumulation, some producers may have flexible negotiation prices. In Shandong, fuel ethanol prices will likely fluctuate. Although some suppliers will take maintenance, the consumption of refined oil is flat, and the advantages of fuel ethanol blending are insufficient, so downstream purchasing intentions will remain cautious. The difference between the high-end price and the low-end price will be wide, and low-end prices may continue to fluctuate.
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