The Listed Undenatured Ethanol Exerting Little Impact on China

On August 2, 2018, the U.S. announced that it proposed to raise the additional tax rate on approximately $200 billion worth of China goods from 10% to 25%. In response to the above measures by the U.S., China decided to impose differentiated tariff rates of 25%, 20%, 10% and 5% on $60 billion worth of the U.S. goods.

According to the list of goods subjected to the 25% tariff rate on the U.S., the undenatured ethanol was included. SCI analyzed that China import market would face no threat from the raised tariff rates.

In 2017, China ethanol (edible + industrial + fuel) apparent consumption was 8,473.1 kt. Customs data showed China imported about 20 kt ethanol in 2017, of which 13 kt of undenatured ethanol only accounted for 0.15% of the apparent consumption volume.

Regarding the 13 kt imports in 2017, Pakistan accounted for 77.52%, in sharp contrast to imports of 0% from the U.S. Customs data showed China undenatured ethanol imports were 56.3 kt in Q1 2018. Hence, SCI predicted that the imports probably exceeded 86 kt, excluding the import from the U.S.

It was reported that the tariff rate on denatured ethanol of the U.S. origin came to 70%. The previous tariff rate of undenatured ethanol was 40%, which would reach 65% plus the proposed 25% tariff rate. In the context of the recent U.S. ethanol price of $560/mt (equivalent to China CFR price), the dutiable value in China would arrive at RMB 7,310 based on 65% tariff rate, making it considerably higher than the recent China 95% ethanol price of RMB 5,350/mt (tax included) and the anhydrous ethanol price of RMB 6,200/mt (tax included).

In conclusion, since the arbitrage window from the U.S. to China closed, the imposed 65% tariff rate on undenatured ethanol would exert little impact on China ethanol market. Moreover, Pakistan still dominated China's import supply sources of undenatured ethanol, while China’s import supply sources of denatured ethanol shifted from the U.S. to countries that made trade agreements with China such as Costa Rica, Sudan, Peru and other countries.