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Fuel Ethanol Analysis in H1, 2019

SCI99

2019-07-18

Fuel Ethanol Analysis in H1, 2019

Part 1 Price Analysis

In H1 2019 China fuel ethanol prices were at a low level. For example, the fuel ethanol price fluctuated at RMB 4,950-5,800/mt (tax included) in Jilin. In February the fuel ethanol prices went up, due to the low stock. In May, the fuel ethanol prices moved up, on the ground that players held that feedstock prices would increase, lending cost support to the fuel ethanol prices.

Part 2 Profit Analysis

In H1 2019, the gross profits at fuel ethanol enterprises declined obviously, and the gross profits fluctuated at RMB -195-681.25/mt. Corn prices were about same as last year. However, given that the subsidies to corn deep-processing enterprises were abolished, the cost of fuel ethanol production at enterprises picked up. Moreover, the fuel ethanol prices over the first five months of 2019 were much lower than those at the same period last year.

Part 3 Supply Analysis

The total import volume of fuel ethanol were 16kt from January to May, and SCI estimates the total import volume of fuel ethanol will be 18kt in H1 2019.

In H1 2019, the China’s output of fuel ethanol was 1281.6kt, up 12.99% from last year. Though the profits at fuel ethanol enterprises went down, the new added units increased. Phase II 300kt/a unit at Heilongjiang Hongzhan Biotechnology in Nehe went into operation. Northeast China is the main fuel ethanol production area. The total output of fuel ethanol was 885.4kt in Northeast China in H1 2019, accounting for 69.09%.

China imported 11.2kt denatured ethanol from South Africa and Pakistan in January 2019 to May 2019, accounting for 85.55% of the total import volume. From January to May, China imported 16kt denatured ethanol as a total, down 96.18% from last year.

Part 4 Demand Analysis

China’s overall demand for fuel ethanol was 1,335kt in H1 2019, and all the fuel ethanol was applied to E10. According to NBS, the output of gasoline was 59,187kt, up 4% Y-O-Y from January 2019 to May 2019. Given that the consumption volume of diesel declined, the average production ratio of diesel to gasoline continued to go down to 1.14:1 in domestic refineries in H1 2019. From January 2019 to May 2019, China’s apparent consumption volume of gasoline was 53,517.2kt, up 4.78% Y-O-Y. The development of new energy automobiles impacted oil-fueled automobile market. The development speed of car ownership slowed down in H1 2019, and the sales volume of oil-fueled cars decreased by around 4% Y-O-Y, which dragged down the demand for gasoline. Therefore, domestic gasoline prices nosedived in Q2 2019.

Part 5 E10 Promotion Analysis

Recently Zhejiang Provincial Energy Administration held a meeting to promote the usage of E10. This meeting mentioned that Huzhou and Lishui would start mandated trial promotions first from June 2019 to August 2019. In addition. Zhejiang province would achieve mandated promotion of E10 in December 2019.

Shanxi would begin to promote the E10 and achieve mandated management and operation from Jan 1, 2020. Except the gasoline for the military, the state and special usage and industrial production, other gasoline would be replaced by E10 in Shanxi. Moreover, the Notice proposed that Shanxi would start the trial promotion of the E10 in Taiyuan, Yangquan, Changzhi and Jincheng to get prepared for the promotion in the whole province.

At present, Henan, Heilongjiang, Liaoning, Anhui, and Tianjin have achieved the mandated promotions of E10 in whole provinces. Additionally, the in eastern coastal China the promotions of E10 are progressing smoothly

On May 27, 2019, Hebei development and reform commission, department of commerce and other 10 departments jointly issued The Plan to Promote Automobile Ethanol Gasoline in Hebei (hereinafter the Plan). The Plan mentioned that Chengde, Zhangjiakou, Tangshan, Qinhuangdao and Langfang would promote E10 on June 1, 2019. According to the Plan, in addition to military special needs, national and special reserves, and industrial production oil, Hebei would mandate E10 management and operation at the end of December.

According to SCI, except for Hebei Shoulang New Energy Technology, there is no fuel ethanol units that are proposed or under construction in Hebei. According to the statistics of the National Bureau of Statistics in 2016, the consumption volume of gasoline in Hebei reached 4,950kt. Based on the 5% growth rate, it is estimated that by 2020, the consumption volume of gasoline in Hebei would reach 6,020kt. That is to say, Hebei will consume above 500kt fuel ethanol annually in 2020.

Part 6 Fuel Ethanol Market Forecast

Due to the severe weather, the output of corn in North China and Northeast China may decline in H2 2019, lending support to the fuel ethanol prices. The consumption volume of E10 will move up in H2 2019. SCI predicts, the demand and the price of fuel ethanol will both increase in H2 2019.