China suspended its plan to impose a nationwide gasoline blend containing 10 percent ethanol this year, sources said, following a sharp decline in maize stocks in the country and reduced biofuel production capacity.
The suspension will significantly affect domestic producers who have already established new facilities, as well as exporters of biofuels, including the U.S. and Brazil, who were looking to gain from growing demand from China.
Following the recent announcement of Phase 1 of a trade agreement with the US, China was expected to increase U.S. ethanol imports. In September 2017, Beijing declared that the national gasoline supply will contain 10 percent ethanol from 2020, part of its corn industry's wide-ranging reform.
But at a meeting with ethanol producers and oil majors in late December, China's National Development and Reform Commission said that it would now suspend the expansion of supplies of ethanol-gasoline beyond the existing handful of areas that have already adopted full or partial blends, sources with knowledge of the matter, disclosed.
Beijing's initiative, known as the E10 Goal, was conceived by using the cleaner-burning fuel to digest the country's huge state corn reserves and reduce pollution on the world's largest car market. Without the mandate, China is now unlikely to require large supplies of ethanol.
According to sources, the decision was carried out after further studies, indicating that any marketing of ethanol gasoline must be based on the precondition that food safety is guaranteed.
In 2016, the United States exported to China about 20 percent of its fuel ethanol, a transaction with a market value of around $300 million that year.
American exports have since plummeted into a trickle that was supposed to be reversed after Phase 1 of the recently announced trade deal between Washington and Beijing was announced.
Throughout 2017, Beijing increased ethanol import duties to 30 percent and added trade war tariffs on U.S. cargo twice throughout 2018, which was another 40 percent.
The increase in import taxes was a step in the "wrong direction and totally unexpected," said Geoff Cooper, chairman of the Renewable Fuels Association, a U.S. trade group.
Based on RFA reports, China was the eighth-largest U.S. ethanol export market in 2018, taking up 52.9 million gallons of maize-based fuel. It also purchased 290,173 tons of US grain, data from the Department of Agriculture reveals.
Meanwhile, China does not usually make public state grain supply levels but the government's reserves of corn have dropped to about 56 million tons from over 200 million tons in temporary supply in 2017, economists said.
