In the Asian fuel ethanol market, buyers benefited from record low prices in the US in 2018. The decrease in US prices was due to high inventory and production. Moving into 2019, the market is optimistic about US-China trade tensions easing and higher domestic production expected in Philippines and India. Meanwhile, for Grade B ethanol, two major origins for the industrial ethanol into South Korea, Brazil and Pakistan, could potentially have lower production next season.
PHILIPPINES FUEL ETHANOL: WILL THE LMAs KEEP RISING?
Historically, Philippines' gasoline blenders procure around 48% of their total requirements from domestic producers while importing the rest. However, the country's Department of Energy is encouraging blenders to consume more domestic ethanol.
The local monthly allocations in Philippines or LMAs, have been on the uptrend in 2018 and are expected to continue increasing in 2019, with first-quarter LMA set at 91,000 cu m, up more than 20% year on year.
Gasoline blenders in the Philippines have to first fulfill their domestic ethanol monthly allocations before importing ethanol. As a result of increased LMAs, Philippine gasoline blenders are of the view that ethanol imports for next year may decline.
In 2018, gasoline blenders ended up paying more for ethanol as the average domestic price rose by 5% year on year to Pesos 53.84/liter, but they also lost out on procuring cheaper imports. The average price of the Asian fuel ethanol marker was down by about 5% year to date in November, compared against the same period last year, S&P Global Platts data showed.
CHINESE ETHANOL: IS CHINA GOING TO RESUME BUYING US ETHANOL?
The US-China trade war grabbed the headlines for most of 2018, and the flow of US ethanol to China stopped with China imposing 70% import duty on denatured ethanol and 50% import duty on un-denatured ethanol.
Before the trade war erupted, US denatured ethanol imports into China totaled 424,437 cu m over January-March, accounting for 99% of the total denatured ethanol imports into China in the period.
Since the trade war started, US-origin ethanol imports have dropped to 37.37% of China's total denatured ethanol imports of 258,544 cu m. However, with news of the trade tension easing towards end of 2018 and China resumed its buying of US soybeans, market participants are optimistic that the ethanol flow from the US to China would start soon.
INDIAN ETHANOL: INDIA TO INCREASE ETHANOL BLENDING RATE TO 9%?
On the back of a bumper sugarcane crop in October 2017 to September 2018 season and another potential surplus year in same period over 2018-2019, the Indian government announced earlier in 2018 that, sugarcane juice and B-heavy molasses can also be used as feedstock, along with C-heavy molasses, which is the only authorized feedstock currently.
In September, a 3.29 billion liters tender was launched for the new ethanol year starting in December. The volume was also the maximum amount India can produce in a year.
Indian oil marketing companies or OMCs have received offers equivalent to 3.14 billion liters of ethanol to be supplied next year, 92% of it from sugar- crop-derived feedstocks, and the rest from damaged grains. If this volume were to be lifted, the Indian blending rate would hit around 9%. This would mark the first time the rate would have surpassed 5% and would take it closer to the 10% target aimed for in 2022.
With more domestic ethanol being diverted for fuel ethanol, India could import more ethanol from the world market for other industrial uses. Ethanol imported into India cannot be used for blending into gasoline. India is the third largest importer of US ethanol in 2018, having imported 341 million liters over January to September this year, USDA data showed.
INDUSTRIAL GRADE B: LOWER PRODUCTION FROM BRAZIL AND PAKISTAN?
The recent drop in gasoline prices in Brazil has been pressuring hydrous ethanol values, which in combination with a weaker Real against the US dollar, has affected the sugar versus ethanol forward curve. According to S&P Global Platts Analytics' estimates, sugar should be paying better than ethanol from April 2019, which will likely impact the mix. Platts Analytics' forecast for the 2019-2020 (April-March) season in Center South Brazil shows a drop in the ethanol mix to 62.5%, from 64.8% in this campaign, for a total ethanol production from sugarcane to reach 28.81 billion liters, a 4% decline on the year.
In Pakistan, the molasses production for the 2018-2019 (December-November) season is expected to drop to 2.8 million mt from 3.3 million mt over the last season due to weaker sugarcane production, as per market estimates. The price of molasses in Pakistan was up by about 16% from the same period last year to Pakistani Rupee 11,000/mt or $78.59/mt, a Pakistani producer estimated. However, the higher cost of molasses as a feedstock for the producers was offset by the benefit of a weaker Pakistani Rupee, which at the time of writing has weakened more than 25% from the beginning of the year to Rupee 139.1606 against the dollar.
With lower production expected from two of South Korea's biggest import origins, Grade B ethanol CFR Ulsan price may extend its uptrend next year. The average Grade B CFR Ulsan price in 2018 was up by $5/cu m year on year to $565/cu m CFR Ulsan in 2018, Platts data showed.
