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China E10 Mandate Opportunities

Report: US Corn, Ethanol Could Benefit From China E10 Mandate

China’s newly instituted E10 mandate has the potential to create more demand for both corn and ethanol produced in the United States, according to a new analysis from the Center for Agricultural and Rural Development at Iowa State University.

In its fall 2017 agricultural policy review, CARD said there are many unknown details about China’s mandate. However, the Chinese are expected to see an increase in gasoline consumption from about 40 billion gallons in 2017 to 46 billion gallons in 2020.

“Meeting the national E10 mandate would require an extra 3.6 billion gallons of ethanol, putting China ahead of the European Union to become the world’s third-largest ethanol consumer,” CARD said.

“Since details of the mandate have not been disclosed, it is not yet clear how China will generate more than fourfold output growth within three years (assuming domestic production is to keep up with consumption).”

As U.S. ethanol producers have faced concerns about the implementation of the Renewable Fuel Standard in recent years, there has been an increased emphasis on growing export markets in China and elsewhere.

China’s government announced the new E10 mandate in September as a way to decrease the nation’s corn stockpiles that peaked at more than 4 billion bushels in 2015-16.

According to CARD, the total accounts for about half of world ending stocks and would be enough for domestic consumption for about six months in China. The stockpiles grew as a result of a corn price support policy that was paying Chinese corn producers more than twice the international price level until 2016.

“Burdened by high storage cost, food safety risks, and potential waste, China recently adopted multiple measures to cut supply and increase demand,” CARD said.

“These measures include replacing the support price with a producer support based on planted area and financial assistance for corn processors. These measures have been effective — since 2015, China’s corn consumption has caught up with production, the price for corn dropped to the lowest point in six years, and ending stock has been decreasing. The E10 mandate will further increase the demand for corn and speed up reduction of the stockpile.”

CARD said the mandate started on a trial basis in 11 provinces and will become national by 2020.

“This measure would require ethanol consumption in China, the largest motor vehicle market in the world, to at least quadruple within the next three years,” the analysis said.

“For U.S. producers, this recent development fuels interest in whether China is going to import ethanol and/or corn (the main feedstock for ethanol production in China) to meet the mandate.”


CARD said that in 2016, China produced more than 1 billion gallons of ethanol. It became the fourth-largest ethanol-producing nation in the world behind the United States, Brazil and the European Union. China’s average annual production growth rate in ethanol production was about 17% from 2004 to 2016.

China’s primary ethanol feedstock is corn, according to the report, which accounts for about 64% of ethanol production in the country. China started ethanol production at four state-owned plants in northern China in 2002 after corn stockpiles reached historical highs.

“As the stockpile decreased and refineries started to use newly harvested corn for feedstock, the government stopped approving additional generation-one ethanol refineries in 2007. By calling for ‘appropriate development of grain-based ethanol,” according to CARD, “the current national E10 mandate relaxes the government’s previous stance against corn-based ethanol.”

In 2006, China began development of ethanol production using cassava. The starchy root plant now accounts for about 23% of China’s total ethanol production.

“However, it is challenging to grow enough generation 1.5 feedstock domestically, and cassava refineries in China still heavily rely on imports,” CARD said.

“Cassava refineries are located in southern China, close to domestic and foreign cassava production regions. Recently, China has been encouraging ethanol production using cellulosic feedstock. However, cellulosic ethanol production is not expected to reach large-scale production until 2025.”

The CARD analysis said recent low oil prices have hurt Chinese ethanol producers. In addition, the Chinese government gradually has removed ethanol subsidies.

“China has been importing substantial quantities of ethanol in the past two years,” CARD said.

“Before 2015, even though the imported ethanol was much cheaper than domestic ethanol, very little ethanol was imported. This is due to government forbidding distributors to handle imported ethanol in order to protect the domestic ethanol industry.”


In 2015, ethanol imports to China reached almost one-quarter of the country’s total supply in 2016, or about 225 million gallons. About 95% of those imports came from the United States. China was U.S. ethanol’s third-largest export destination in 2016, amounting to about 17% of total U.S. ethanol exports.

At the end of 2016, China increased the ethanol import tariff from 5% to 30%. CARD said that action caused the forecast for imports in 2017 to fall to just 35% of 2016 levels.

With a national E10 mandate in place, however, CARD said China will need to take action to ramp up ethanol availability.

“Since details of the mandate have not been disclosed, it is not yet clear how China will generate more than four-fold output growth within three years,” the report said.

“Currently, production capacity utilization rate is about 85%; therefore, a short-term production spur can be achieved with existing facilities. Beyond that, a dramatic increase in capacity is needed. Since it takes one to two years to build a large-scale generation 1 or 1.5 refinery in China, it is possible that China will be able to construct the physical facilities in time.”

If current trends in production and consumption continue, according to CARD, “China’s corn stock will fall quickly, opening up potential opportunities for more imports.”

The analysis said China’s E10 mandate is likely to speed up the reduction in corn stockpiles, requiring between 650 million and 1.35 billion bushels of corn per year.

“If China wants to maintain a stockpile of 1.39 billion bushels, the lowest in recent history, it will need to import 2 billion bushels of corn by 2020-2021 and much more after that,” CARD said.

“China may change its policies if it finds high levels of corn import unacceptable. In the past, China has imported large quantities of ethanol when domestic production has fallen short of demand. If imports surge as a result of the E10 mandate, the United States, the top ethanol exporter to China, will benefit” even with a 30% tariff in place at the time of the analysis.

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