By Mi Duo, Gong Xiuping, Zheng Hui

Analysis and forecast of production

The capacity of China's fuel ethanol was on an expansion from 2018 to 2022 (see Figure 1). During 2018-2020, the pace of capacity expansion was fast, given bullish outlook for ethanol fuel promotion and driven by profits, with most of the new capacities mainly located in the northeast region and few in other regions. As the outlook for ethanol fuel promotion turned cautious, and the profits of ethanol fuel dropped, the number of new comers in the industry decreased. Accordingly, there was no increase in capacity of China's ethanol fuel in 2021. The capacity in 2022 was 5.19 million t/a (see Table 1), an increase of 600 000 t/a compared with 2021. The growth rate of capacity was 13.07%, up by 1.6 percentage points from the compound growth rate of 11.47% in the past five years.

Figure 1 Changes in China's fuel ethanol capacity from 2018 to 2022

According to Figure 2, China's fuel ethanol capacity was distributed in five major regions in 2022, covering 12 provinces. Among them, Northeast China accounted for 66%, ranking No. 1; East China came second, accounting for 16.33%; North China only took up 1.2%, ranking the last. Figure 2 shows the proportion of regional ethanol fuel capacity in China from 2018 to 2022.

Figure 2 Proportion of regional ethanol fuel capacity in China from 2018 to 2022

In 2022, the No. 1 central document, i.e. the Opinions of the Central Committee of the Communist Party of China and the State Council on the Major Tasks of Comprehensively Promoting Rural Revitalization in 2022, put forward that the processing of corn-based ethanol fuel should be strictly controlled. Accordingly, the ethanol fuel projects planned for construction in Northeast China were quickly held back and the construction of two projects in Inner Mongolia was terminated. China's ethanol fuel capacity is expected to stick to 5.19 million t/a in the next five years. The ethanol fuel projects to be planned for construction will favor cellulose-based ethanol and cassava-based ethanol in the future and the start-up time remains unknown (see Table 2 for details).

Market analysis and forecast

China's ethanol fuel industry turned oversupplied from undersupplied during 2018-2022. Table 3 shows the change in output and consumption in line with the widening gap between supply and demand. The growth rate of domestic ethanol fuel consumption was unstable during the period, mainly because of ethanol gasoline consumption. As we all know, the ethanol gasoline consumption is now closely related to the promotion of ethanol gasoline policy and the development of bioenergy. The compound growth rate of China's ethanol fuel consumption was at 7.34% from 2018 to 2022.

In 2017, 15 departments including the National Development and Reform Commission rolled out the Implementation Plan on Expanding the Production of Biofuel Ethanol and Promoting the Use of Automotive Ethanol Gasoline, aiming to promote the application of ethanol gasoline nationwide by 2020. Therefore, Shanxi, Hebei, Shandong, and Jiangsu successively launched ethanol gasoline promotion plans in 2019, but the implementation of these plans was postponed due to various reasons. In addition, the National Development and Reform Commission and the National Energy Administration also held a meeting at the end of 2019 to turn to encouraging but not enforcing the previously nationwide promotion plan. As of the end of December 2019, only 14 provinces, municipalities, and autonomous regions in China, including Jilin, Heilongjiang, Liaoning, Anhui, Henan, Guangxi, Jiangsu, and Shandong, out of the total 34 provinces in China, fully or partially implemented the use of ethanol gasoline (see Table 4). There was no new list of provinces from 2020 to 2022.

There were some changes in the supply and demand of domestic ethanol fuel from 2017 to 2021: First, the government proposed a plan in 2017, aiming to basically achieve the application of ethanol gasoline nationwide by 2020, and hence both the supply and demand in ethanol fuel industry increased during 2018-2019. Second, mobility decreased in 2020 due to the pandemic and low oil prices hit the bioenergy industry, so both the supply and demand of ethanol fuel decreased. Third, the demand for ethanol fuel rebounded resiliently in 2021 in line with a recovery from the public health event. This, coupled with a rally in oil prices, relieved the losses of ethanol fuel production. In addition, some producers resumed their enthusiasm to produce ethanol fuel on the back of heavier pressure on edible and industrial ethanol sales, so both supply and demand of ethanol fuel increased. Fourth, in 2022, the import volume decreased, easing the pressure of the supply of domestic goods. Therefore, the margin room in production was high and the output increased by 69 000 tons compared with 2021. However, the traffic in some regions slowed down due to the pandemic, reducing the demand for gasoline. Thus, ethanol fuel consumption dropped compared with 2021.

It is expected that both supply and demand of domestic ethanol fuel will increase in the next five years given the waning influence of unexpected factors on transportation in line with the end of public health event, and the strengthening demand for gasoline. The export volume will remain low because of its limited competitiveness. The regional expansion of ethanol gasoline application is still slow, but there is still room for the development of biofuels. Therefore, the demand for ethanol fuel will grow. Table 5 shows the forecast of domestic ethanol fuel supply and demand balance from 2023 to 2026.

Analysis and forecast of import and export

The customs code of ethanol includes 2207100000 for unmodified ethanol with alcohol at and above 80% concentration and 2207200010 for modified ethanol with any concentration. Modified ethanol can be used for oil blending.

During 2018-2022, the import volume of modified ethanol in China was up and down, while the export volume was relatively small (see Table 6 for details). The key factors affecting the changes are domestic and impot prices, as well as tariff changes. In the past five years, the highest import volume was seen in 2018, and the lowest in 2022. In 2022, a closure of the arbitrage window between China and the United States resulted in minimal import and export volume of domestic ethanol fuel.

Import volume is very likely to decrease in 2023 because the arbitrage window between China and foreign countries remains closed, and the growth rate of domestic production may be faster than demand, leaving no supply gap.

Analysis and forecast of prices

In 2022, the prices of ethanol fuel in China fell after a rise. For example, in Northeast China, the highest price was seen at the end of March, at RMB7 550/ton; the lowest price appeared in December, at RMB6 400/ton. Figure 3 shows the price trend of ethanol fuel in Northeast China in 2022.

Figure 3 Price trend of ethanol fuel in Northeast China in 2022

From the perspective of long-term trend, the prices of ethanol fuel in Northeast China in 2022 continued the upside since April 2020, and the increase during the year was bigger than that of RMB1 150/ton in 2021. From the perspective of seasonal characteristics, the seasonal characteristics of prices in 2022 were very different from those in the last decade. To be specific, the prices in April, May, June, and October were divergent from historical trends. By comparing the average prices over the past two years, the average price in 2022 was at RMB6 965/ton, up by RMB187/ton from 2021. Looking into the prices in the past four years, we can see that the prices in 2022 were the highest. Figure 4 shows the price trend of ethanol fuel in Northeast China from 2019 to 2022.

Figure 4 Price trend of ethanol fuel in Northeast China, 2019-2022

As the No. 1 central document was launched in 2022 and the market competition is becoming more and more furious, the expansion of traditional fermentation-based ethanol fuel capacity will slow down, and it is more likely that some capacities of coal-based ethanol will enter the ethanol fuel industry. The products from ethanol fuel plants are becoming more and more diversified and producers will frequently switch production between different specifications for more profits, which will bring uncertainty to edible, industrial ethanol as well as ethanol fuel, and will make the market more flexible.