Prospects on China Biodiesel Market

By Dong Hai, PetroChina Marketing Company; Qiu Xuan, PetroChina Planning and Engineering Institute; Yin Jie, PetroChina Northwest Marketing Company

China adjusted the import tariff of biodiesel twice in recent years, correspondingly causing the trading status of biodiesel to change greatly.
1. Imported biodiesel brought impacts on domestic market
In 2013 Chinese traders imported large amount of biodiesel by the consuming tax reduction and exemption policy and China-ASEAN Free Trade Agreement, which finally had impacts on the biodiesel market in China’s coastal areas.
(1) Favorite policies of tax and quotation help the biodiesel importers to gain bigger margin and opportunity
China’s General Administration of Customs set up in 2012 two codes for imports of biodiesel: 27102000 the conventional diesel content higher than 70%, mostly referring to B5 diesel and 38260000 the conventional diesel content less than 70%, mostly referring to diesel BD100. As long as the imported diesel contains more than 3% of biodiesel, it will be regarded as biodiesel and will be exemption from the RMB0.8 per liter of consuming tax (equivalent to RMB940/t). Additionally, if the imported biodiesel came from ASEAN members, it will further be free of 6% custom tariff. Therefore the after-tax CIF price of biodiesel is RMB900/t lower than the wholesale price of conventional diesel.  
(2) Imports soared in H2 2013
In 2013 China imported 2.67 million tons of biodiesel, of which biodiesel B5 accounted for 95%. In the first half of 2013 the monthly average imports of biodiesel was less than 100 000 tons but in the second half it reached 360 000 tons. The imported biodiesel mainly came from four Asian countries including Malaysia, Thailand, Singapore and Indonesia. Imports from Southeast Asia held 99% in China’s imported biodiesel market.
(3) Imported biodiesel mainly influences diesel market in China’s coastal areas
In 2013 customs at China’s coastal areas - Hangzhou, Guangzhou, Tianjin, Zhuhai and Dalian customs ranked the front, imported biodiesel of 765 kt, 709 kt, 420 kt, 186 kt and 94 kt respectively.
2. Imports reduced sharply in 2014
Chinese administration departments adjusted tax policies for imported biodiesel in 2014, which narrowed profit margin and restrained enthusiasm of importers.  
(1) Policies changed again
At the end of 2013 China’s Ministry of Finance and State Administration of Taxation jointly issued a notice about the collection of consuming tax in import process against concerning finished oil codes. The notice regulates that the nation collects consuming tax against those biodiesels under codes of 27102000 and 38260000, effective January 1, 2014, which do not conform to the standard of biodiesel BD100. With the execution of this policy, the import of biodiesel except BD100 type shall be charged of RMB940 consuming tax per ton.
(2) Import of biodiesel B5 decreased sharply due to narrowed profit margin
After the policy changed, the after-tax CIF price of B5 biodiesel increased to RMB7 900/t in eastern China region, close to the domestic wholesale price of conventional diesel, which led to a sharp fall of B5 imports. In Jan-Apr of 2014, China’s monthly average import amount of B5 biodiesel was 31 000 tons, a down of 180 000 tons compared with the same period of 2013. The imported B5 biodiesel was mainly shipped to Zhejiang province and Shanghai, with a monthly average import amount of 20 500 tons and 9 700 tons respectively.  
(3) Poor margin left for BD100 importers
As of April 2014, the after-tax CIF price of BD100 biodiesel was around RMB6 600/t in eastern China region, about RMB1 200/t lower than the domestic wholesale price of conventional diesel. Because BD100 biodiesel must blend with conventional diesel at a rate of 5% to form B5 biodiesel, then the margin per ton imported BD100 biodiesel is diluted to RMB60/t.
(4) Import amount of type BD100 grows up
This policy change does not have impact on the import of BD100 biodiesel and the import amount of BD100 biodiesel continued to increase. In the first four months of 2014 China’s monthly average import amount of BD100 biodiesel was 72 000 tons, an increase of 60 000 tons compared with the same period of 2013. The imported BD100 biodiesel was mainly shipped to Guangdong province, Zhejiang province and Shanghai, with a monthly average import amount of 98 600 tons, 60 600 tons and 59 900 tons respectively.   
3. Market for domestically made biodiesel remaining steady
China began producing biodiesel in 2008 and now has a total capacity of around 2 million t/a. In recent years China’s biodiesel market remained steady. Now China has nearly 20 biodiesel producing companies, mainly located in Shandong, Hebei, Jiangsu and Zhejiang provinces with an annual output between 350 000 tons and 500 000 tons. Most companies take plant products or drainage oil as raw materials and mainly produce type BD100 biodiesel.   
The quality of BD100 biodiesel made in China lags behind the biodiesel made abroad. The domestically made biodiesel is also sold at price of RMB1 200/t to RMB1 500/t cheaper than the wholesale price of conventional diesel, and RMB300/t to RMB500/t lower than the price of light fuel. Diesel buyers typically blend BD100 type biodiesel into conventional diesel at a ratio of 5% to 10% and the properties of blended diesel approach that of conventional diesel, except that the content of biomass may exceed standard.   
4. Prospects
Biodiesel has some advantages at fuel properties and price and cost. It has great profit margin and good development prospect although its market recognition is still to be cultivated and developed. Under the influence of tariff adjustment, China’s biodiesel market fluctuated greatly in recent years. Development of new generation energies needs supports from policy and market situation. To meet the continuous upgrading requirements for quality of diesel at present, the regulation of market order and product standard should be focused on when developing and promoting biodiesel.