Chinese ethanol buyers are turning to Central and South America for arbitrage supply, after Beijing's imposition of additional 15% import tax on US ethanol has priced US cargoes out of the Chinese market.
A Chinese oil refiner has bought 16,000-17,000 mt of fuel ethanol from Costa Rica this week, for late May or June loading in one vessel, trade sources said.
But sources expected this to be a one-off shipment, as limited supply from Costa Rica would likely cap further arbitrage moves even though Beijing currently does not levy an import tax on ethanol from Costa Rica under a free trade agreement.
Other Central American producers though, are targeting Asia as a demand outlet, a European trader said.
"Europe T2 market was [the] main destination for Central American ethanol as there's no duty, but demand in Europe has been very weak," he added.
Brazil, the world's second-largest ethanol producer after the US, is another arbitrage source for China, as cargoes from Brazil attract a lower import tax of 30%, compared with the 45% tariff imposed on US imports since April 2.
But as of now, the arbitrage window from Brazil is closed.
S&P Global Platts assessed FOB Santos ethanol at $513/cu m on Tuesday, which would equate to around Yuan 6,981/mt after normalizing freight, 30% import duty and 16% value added tax.
This was still much higher than prevailing domestic prices at Yuan 5,600-5,900/mt in northeast China.
Meanwhile, recent offers of US origin fuel ethanol for June loading were at $580-$585/mt CFR China main port, which equated to Yuan 6,273-6,327/mt after normalizing for 45% import duty and 16% VAT.
"Arbitrage to China [is] not open, [there is] at least a $40/mt price difference," a US fuel ethanol seller said.
China aims to roll out E10 gasohol on a nationwide basis by 2020, which would bring China's ethanol consumption to 18.7 billion liters/year, Platts Analytics data showed.
In comparison, the country's ethanol production capacity is targeted to reach 5 million liters/year by 2020 at the end of its 13th Five-Year Plan.
