Japan's new policy announcement this week to allow US corn-based ethanol as a feedstock in the production of bio-ethyl tert-butyl ether (ETBE), starting April 2018, will have a limited immediate impact in the Asian ethanol market, sources said.
Cargoes from Brazil for the next crop 2018-19 (April-March) were already booked and therefore any impact of a change in the Japanese legislation would only affect exports from Brazil for the 2019-20 season, according to market sources.
Since 2011, Brazilian cane-based ethanol was the sole source of ethanol used for ETBE production, an oxygenate used in gasoline blending. This was the only feedstock that met Japan's rigorous greenhouse gas (GHG) emission savings of 50%.
Japan imported 89.7% or 1.744 million cu m of its ETBE requirement in 2017-18 from a company in the US, as its own domestic production capacity is 200,000 cu m/year, according to S&P Global Platts Analytics data.
The latest revision in regulations Tuesday allowed Japan to use ETBE produced with up to 44% US corn-based ethanol and still meet the country's GHG savings standard which has increased to a minimum of 55%.
This policy change would increase demand for US corn-based ethanol by 328,000 cu m/year, based on an estimated 1.944 million cu m of ETBE consumption in Japan, Platts Analytics data showed.
However, the potential increase in demand for US ethanol could be offset by the looming global uncertainty.
"China is slapping on 15% additional duty on US ethanol, US sorghum has 178.6% cash deposits on potential anti-dumping duties, and not to mention potential threats of 25% additional duty on all agricultural products, so the market doesn't really care about this yet," a trader said on Thursday.
Asian ethanol spot prices in the near term were more likely to be affected by US ethanol futures and US short-term market fundamentals.
Japanese refiners first introduced ETBE-blended gasoline as part of Tokyo's commitment under the Kyoto Protocol to cut GHG emissions by 6% from 1990 levels during 2008-2012.
