August 30, 2019 / 12:12 AM / 2 months ago

China, India better bets for U.S. ethanol than Japan: Braun

FORT COLLINS, Colo. (Reuters) - (The opinions expressed here are those of the author, a market analyst for Reuters.)

U.S. ethanol exporters are not having a banner year in the wake of the U.S.-China trade war and a reduced price advantage, but a recent tentative agreement between the United States and Japan has raised the possibility of increased presence for the U.S. product in the Japanese market.

While this may seem friendly, China and other Asian countries may be better placed to make an impact on U.S. ethanol trade than Japan. U.S. market expansion may be much more likely if trade were to open back up with China, either tariff-free or with much lower tariffs.

Around 10% of ethanol produced annually in the United States is exported, but many members of the industry have been hoping for an expanded presence in the international market. U.S. exports hit a record 6.4 billion liters (1.69 billion gallons) in 2018, but things have been less rosy this year.

In the first half of 2019, ethanol exports stood at 2.9 billion liters, down 19% from the same period in the previous year. The two biggest culprits are Brazil and China, the latter of which has virtually shunned the renewable U.S. fuel amid the ongoing trade war.

Brazil is the largest importer of U.S. ethanol with a share of 30% and nearly all its exports originate from the United States, and all of it is used for fuel. But increased domestic supply and price spikes in the United States will likely lead to a 30% decrease in imports this year, according to the U.S. Department of Agriculture’s post in Brazil. (


China is not historically prominent in U.S. ethanol trade, accounting for 3% of U.S. exports last year. That was down from 4% a year earlier and an extremely anomalous 17% share in 2016.

Recent pledges from Beijing had U.S. producers hopeful that China would establish itself as a reliable importer with increasing needs. But that ground to a halt last year as the trade war broke out between the two countries, leading Beijing to boost effective tariffs on imports of U.S. denatured ethanol to 70%.

But these tariffs are hurting China’s goal to increase the blend rate of ethanol into gasoline to 10% by 2020, which was announced two years ago. Ever since China opened its markets to ethanol imports in 2015, the majority of annual trade has come from the United States.

The infrastructure is simply not in place to meet these needs on time, especially without the cushion of cheaper imports. Other issues stem from spotty investment and localized policies that lack enforceable compliance measures at the national scale.

Earlier this month, USDA’s Beijing post reported that China will miss its 10% goal by 2020 by a wide margin, citing that China would have to expand fuel ethanol production by at least 50% to meet domestic demand without relying on imports, which is impossible within the given time frame.


Last weekend, U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed to the core elements of a trade deal, which was said to cover agriculture. U.S. Trade Representative Robert Lighthizer said that U.S. beef, pork, wheat, dairy products, wine, and ethanol would all benefit from the deal.

But Japan has been a negligible importer of U.S. ethanol. The United States shipped nearly 28 million liters (7.4 million gallons) to Japan in 2018, more than three times its previous annual record, though that accounted for only 0.4% of total U.S. exports.

Additionally, Japan has one of the lowest blend rates for ethanol in gasoline of any country, at about 1.8%, according to USDA’s Tokyo post. Japan’s biofuel mandate, which extends through 2022, calls for the use of 820 million liters (217 million gallons) of ethanol per year.

Last year, Japan revised its biofuel policy to allow 44% U.S. corn-based ethanol in imported gasoline additives, meaning the maximum impact on the U.S. ethanol industry could be 361 million liters. That would still comprise only a few percentage points of total U.S. exports.


More reliable Asian customers include India, the third-largest importer of U.S. ethanol at 9% of total U.S. exports in 2018. India’s biofuel policy, introduced last year, aims to achieve a national blending rate of 10% ethanol into gasoline by 2022, jumping to 20% by 2030.

While this goal may be lofty, India has increased imports of ethanol nearly four-fold in the past five years, and consumption of ethanol for fuel has risen nearly seven-fold since then. The United States is expected to remain India’s largest supplier.

South Korea and the Philippines were the fourth- and fifth-largest destinations for U.S. ethanol last year, both with a 5% share. South Korea does not allow the use of ethanol as a transportation fuel, but the government is currently reviewing the possibility. If approved, this could be a significant opportunity for U.S. exporters.

Editing by Matthew Lewis

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