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"Yesterday the Chinese government announced that bio-fuel ethanol will be introduced in full scale by 2020. This has driven up all the stocks related to bio-fermentation companies and their rise continues today. I believe the direction is set." Says Hao Li, Managing Director of HCA Consulting China, from his Beijing office.
Will China also provide a positive jolt for Indonesia and Malaysia palm oil? There is an increased engagement with the China market from palm oil exporters, given their apparent problems in Europe regarding volume drops in food-use and also political policy noises to cut off access to biodiesel market there. The Singapore BT just headlined "Top palm oil firms facing EU firing rethink trade strategy - Major producers in Indonesia and Malaysia are looking at new markets ranging from Africa to Myanmar" (http://www.businesstimes.com.sg/energy-commodities/top-palm-oil-firms-facing-eu-firing-rethink-trade-strategy).
Malaysia data for its export mainstay of palm oil, saw an overall 8% drop in volume (on lower production) in 2016 but exports to the top three Malaysia export markets were particularly down; India, China and Netherlands faced volume drops of -23%, -21% and -29% respectively, and #7 and #9 export destinations USA and Japan were both down -16%.
The views of regional biodiesel traders are well represented by this comment: "Interesting, but a long shot as this would require China to pay a premium for B5 unless they are willing to subsidize."
HCA China analysis for biofuels:
From 2017, auto gasoline (including E10 ethanol gasoline) and auto diesel (including biodiesel) that meets the national standard GB-V will be supplied throughout China. Driven by this policy, the biofuel industry is expected to enter a golden period of development.This has drawn the attention to palm oil producers. The Chinese government seeks to promote the use of B5 biodiesel. Based on a 180 million kiloliters/year consumption of diesel fuel in China, the promotion on B5 biodiesel will directly drive the sales volume of biodiesel by increasing 9 million kiloliters (9 million MT) per year. According to data issued by the General Administration of Customs, China’s palm oil import volume totaled 3.07 million MT in 2016. Theoretically, the import volume of palm oil would double, if the government’s energy dividend policy is implemented.... Currently, there is no detailed schedule about the negotiations between each country. Further, the application of biodiesel requires the support of policy and downstream companies.
"The new policy for 13 Sep 2017 sets out bio fuel ethanol as the representative of the bio energy policy; it is a national strategic emerging industry. In the current situation, the expansion of bio fuel ethanol production and promotiong of the use of ethanol gasoline, will optimize the energy structure, and also improve the ecological environment, the regulation of the grain market,as well as to the promotion of rural and regional economic development," says Dr Hao.
Ethanol gasoline is a mixture of 10% fuel ethanol and 90% common gasoline blended with gasoline (E10 gasoline). In this composition, ethanol as a combustion improver can help gasoline burn more fully. Compared to the current mainstream gasoline additive MTBE, ethanol obviously has lower emission advantages of environmental protection. China policy has been increasingly concerned about air pollution.
With the 13 Sep 2017 new policy direction set for biofuel ethanol, keep in touch with us on other China biofuels and chemicals sector happenings. China's multi-pronged policy shifts are market movers.
By KHOR Yu-Leng, Segi Enam Advisors Pte Ltd, interviewing Dr HAO Li, HCA Consulting China, 14 Sep 2017.