Fuel Ethanol Sales from NE-China to Shandong Increased
Introduction: In early July, China’s fuel ethanol prices showed divergent trends, with a slight decline in Northeast China and a rebound in low-end prices followed by fluctuations in Shandong. The arbitrage window for sales from Northeast China to Shandong was opened. In Northeast China, ample supply prompted producers to actively offload inventory, leading to a minor weakening in prices, though cost support limited the price fluctuation range. In Shandong, low-price supply remained scarce, driving prices back to annual highs and opening the arbitrage window from Northeast China to Shandong. For mid-to-late July, Northeast China’s fuel ethanol prices are expected to remain stable with limited fluctuations, while the Shandong market may see a decline due to anticipated supply recovery.
Sales from Northeast China to Shandong increased in early July amid divergent price trends between production and sales areas.
In early July, fuel ethanol prices in Northeast China and Shandong diverged, with the price spread temporarily widening, leading to increased sales from Northeast China to Shandong. The fuel ethanol supply in Northeast China remained sufficient in July, and with rising inventory levels at the beginning of the month, producers were more inclined to sell, resulting in lower prices from producers and a drop in order prices for state-owned refineries. However, as some units began maintenance and sales to enterprises outside state-owned refineries increased, the growth in suppliers’ inventory slowed, stabilizing prices in Northeast China. As of July 11, the closing price for 99.5% ethanol in Northeast China was RMB 5,500-5,780/mt, down RMB 50/mt from the low-end closing price on June 30. In Shandong, the short-term shutdown of the unit in Anhui and delayed supply recovery from Shaanxi’s plant made low-priced ethanol scarce, pushing prices up and causing fluctuations based on supply-side news. As of July 11, the closing price for 99.5% ethanol in Shandong was RMB 5,750-6,100/mt, up RMB 70/mt from the low-end closing price on June 30. The price spread between Northeast China and Shandong first widened and then narrowed, peaking at RMB 350/mt on July 2.
In early July, Northeast China’s fuel ethanol prices were primarily influenced by supply and demand dynamics, with the cost side providing support. However, due to producers’ willingness to offload inventory, prices weakened slightly, though the loss-making situation remained unchanged. Despite the summer travel season, widespread high temperatures and rainfall across China limited driving distance and adversely affected construction projects, leading to overall sluggish demand for gasoline and diesel. On the supply side, most major producers in Northeast China maintained mid-to-high inventory levels, and even producers under shutdown held ample inventory. However, as maintenance increased and sales to enterprises outside major refineries rose in early July, the growth in fuel ethanol inventory slowed, stabilizing price fluctuations. In sales areas like Shandong, local refineries reflected only moderate demand growth during the summer, with procurement mostly meeting immediate needs. The temporary shutdown of Anhui’s plant in early July raised supply reduction expectations, triggering a wave of restocking and price increases. However, with the replenishment of Northeast China’s supply, delivered prices in central Shandong exceeded RMB 5,800/mt, leading to ample supply again. After quickly hitting a peak in early July, the market entered a phase of fluctuations and corrections.
Fuel ethanol prices are expected to undergo slowed-down fluctuations in Northeas China but to weaken in Shandong.
Northeast China’s fuel ethanol prices are expected to fluctuate limitedly in July. A temporary decline in corn prices may reduce losses for Northeast China’s producers, but cost support remains intact. On the supply side, the supply will remain ample as Heilongjiang Wanli Runda Biotechnology plans to resume production by the end of July and Harbin Hongzhan Bioenergy plans one-month maintenance starting July 18. Some producers have yet to confirm maintenance plans for August. On the demand side, the summer season has boosted gasoline consumption to some extent, but overall demand remains constrained by factors such as competition from alternative new energy sources and fluctuating crude oil prices, which affect end-user confidence.
In Shandong, with the expected recovery of supply from Anhui and Shaanxi in mid-July, fuel ethanol prices may fall due to growing supply, potentially closing the theoretical arbitrage window from Northeast China to Shandong. Weak demand and ample supply in Northeast China, coupled with cautious price adjustments by major producers due to cost support.
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