Edible and Industrial Ethanol Output to Decrease in May
Introduction: China’s 95% ethanol prices dropped to the lowest level since September 2020 as the supply competition intensified. Falling prices led to a decline in production gross profits, and high inventory made it more difficult for enterprises to operate. Therefore, the probability of a decline in edible ethanol output in May increased. After the supply reduction, the price of 95% ethanol is expected to gradually bottom out.
The price of 95% ethanol fell to a 43-month low, with the largest decline in East China.
According to SCI, the national average daily price of 95% ethanol on April 15 was RMB 6,000/mt, the lowest in 43 months. Among them, the price of 95% ethanol in northern Jiangsu was RMB 5,950/mt, down RMB 150/mt or 2.46% from the last working day in March and RMB 640/mt or 9.71% Y-O-Y. In April, East China was the region with the fastest price decline. The supply of goods in the region was scattered, and the inventory of ethanol producers climbed due to weak demand, causing the industry competition to intensify. The price decline gradually spread from East China to Northeast China. Generally speaking, Northeast China, as the region with the largest ethanol output, has a higher pricing power. However, the influence of ethanol prices in East China was significantly higher than that in Northeast China in April, so ethanol prices in Northeast China followed the downtrend in East China most of the time.
Sellers in East China had high sales enthusiasm due to concentrated ethanol resources.
East China is the largest ethanol consumption region in China. In 2023, the flow of ethanol resources from other regions to East China sped up against the background of underperformed demand. From the arbitrage, the arbitrage window was open from Henan to many places in East China. There were no arbitrage opportunities from Northeast China to East China by automobile transportation, but there were still shiploads arriving in East China. It was roughly estimated that around 20kt of shiploads would arrive in East China by the end of April. In addition, although only one local ethanol producer maintained production in northern Jiangsu in East China, the major units in Anhui ran stably, and the market trading of wheat-based ethanol in Shandong was also active, resulting in the overall supply of ethanol in East China being scattered. There will still be five days for the May Day holiday, and some sellers are willing to destock before the end of April.
High inventory made enterprises face difficulties in production.
According to SCI, China’s edible and industrial ethanol inventory was at a high level and exceeded 200kt by the end of March. In Northeast China, the inventory still increased in April, and some ethanol producers were expected to face the risk of inventory saturation from the end of April to the first half of May, so the probability of shutdown of ethanol producers rose. In addition, a small number of producers in Inner Mongolia were also at risk of shutdown from the end of April to the beginning of May. It was expected that the output in East China would be sable in May amid steady operation of edible ethanol units. However, the current inventory in Henan is declining because Henan is the main production area of corn-based ethanol and the production cost is the lowest.
There is a probability of output decline in May, and prices may bottom out in late April.
The probability of a decline in edible and industrial ethanol output in May increases because more units in Northeast China and Inner Mongolia will likely take maintenance. The supply is expected to decline, and there may be restocking demand before the May Day holiday. Therefore, the price of domestic 95% ethanol may gradually reach the bottom in mid-to-late April. In the future, attention should be paid to the maintenance plan in Northeast China, destocking in East China and the price fluctuation in Henan. Especially when ethanol production in Henan is still profitable, future corn price fluctuations will have an impact on ethanol prices in Henan, and ethanol prices in Henan may also gradually affect the price in East China.
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