Edible and Industrial Ethanol Price Comes Under Pressure
In October, China’s 95% ethanol prices showed a downtrend. Taking northern Jiangsu, where the market trading was relatively active, as an example, as of October 25, the ex-works price of ethanol enterprises fell to RMB 6,850/mt, down RMB 300/mt or 4.20% from the last trading day in September. The price decline was mainly affected by the increase in ethanol supply in Northeast China and the decrease in the costs of corn-based ethanol. In addition, players’ bearish sentiment also had an impact on ethanol prices. In November, the decline in 95% ethanol prices may narrow.
Costs of corn-based ethanol fell, pressuring the ethanol price.
In October, corn prices dropped as the supply of new corn increased, reducing the costs of corn-based ethanol. Hereinto, the price change in Northeast China was relatively significant. According to SCI, the purchase price of corn at some corn-based ethanol enterprises in Jilin was RMB 2,310-2,400/mt as of October 25, down RMB 310/mt from the last trading day in September. Therefore, the costs of corn-based ethanol and DDGS dropped by RMB 930/mt. Then, prices of corn-based ethanol and DDGS went down notably. On October 25, prices of DDGS and 95% ethanol in Jilin decreased by RMB 225/mt and RMB 250/mt respectively from the last trading day in September.
Ethanol supply in northern China grew on the back of positive profits.
Despite the decrement in ethanol and DDGS prices, the profit from producing corn-based ethanol reached a year high, and ethanol enterprises’ production enthusiasm increased significantly. According to SCI, based on the corn price of RMB 2,400/mt, DDGS price of RMB 2,460/mt, and ethanol price of RMB 6,500/mt, the theoretical production profit of corn-based ethanol was RMB 452.5/mt. Therefore, the operating rates of ethanol enterprises in northern China rose rapidly. Stopped enterprises in Inner Mongolia, Heilongjiang, Hebei, Henan and other places gradually resumed production, pushing up the operating rate of China’s edible and industrial ethanol market. As of October 26, the national operating rate was 49.25%, up 6.06% from the last working day in September. After the ethanol supply grew, the enterprises were active in sales, so the price drop in Heilongjiang was faster than that in other production areas.
Players were bearish about the future market, causing the trading volume of ethanol to slide.
Affected by the rapid decrease in corn prices and the growth in ethanol supply, the downstream rigid demand did not shrink, but the purchase enthusiasm declined significantly. In East China, the purchase volume of ethanol from downstream producers was around 13kt in the week ended on 19, but that was only 3kt by October 26. Buyers put off the purchase of ethanol or reduced the purchase volume due to the lack of short-term confidence. Therefore, the market trading decreased.
Supply in southern China and northern China becomes different.
The supply of corn-based ethanol is ample, but that of cassava-based ethanol is about to fall to the lowest level in the second half of 2023. At present, the profit from producing cassava-based ethanol was RMB -403.68/mt, and cassava-based ethanol producers’ interest in buying cassava slices further dropped. From the end of October to early November, two cassava-based ethanol producers plan to shut down their units for maintenance. At that time, the operating rate of the ethanol market in East China is likely to be 26%, and that in Jiangsu will probably slide to the lowest level in the second half of 2023. In November, the supply of cassava-based ethanol is estimated to continue to decrease, and the new crushing season of molasses-based ethanol has not come, so the ethanol supply will be concentrated in the production areas of corn-based ethanol, which may ease the excessive bearish sentiment in East China.
The price spread between different areas is notable, affected by low cost and large supply volume of corn-based ethanol, so the high-end price of ethanol in some areas will likely fall back in the short term. Entering November, players can pay attention to whether the corn price will bottom out. In addition, the automobile transportation distance from Northeast China to East China is long, and some corn-based ethanol producers have the habit of centralized signing of orders. Therefore, the capacity of automobile transportation and the delivery of ethanol producers need to be focused on. It is expected that the ethanol price may be low first and then become high in November.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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