In September 2017, the
Chinese government announced a nationwide ethanol mandate that expands the
mandatory use of E10 fuel from 11 trial provinces to the entire country by
2020. The key motivation for the E10 mandate was to reduce the country’s large
corn stockpile, which peaked in 2015 and to curb air pollution and Green House
Gas emission created by China 194 million cars at that time, as ethanol has the
potential to cut down carbon dioxide, particulate pollutants, and other
matters. This mandate allowed the ethanol industry to grow and made China the
fourth largest ethanol-producing country in the world in 2016. Currently, China
consumes 40 billion and one billion gallons of ethanol and by 2020 the projected
gasoline consumption will reach 46 million gallons. The projection of gasoline
implicate that the country would require an extra 3.6 billion gallons of
ethanol to meet its national E10 mandate.
However, with current
trend and production, China’s corn stocks have fallen and with E10 mandate the
stockpile reduction has to speed up, opening opportunities for greater imports.
According to industry experts, the E10 mandate will require approximately 0.65
billion to 1.35 billion bushels of corn per year. And with this rate, the
stockpile will be depleted at the end of the 2019/2020 crop year. So, if China
wants to achieve its green E10 mandate than it needs to maintain a stockpile of
1.39 billion bushels it needs to import 2 billion or more bushels of corn by 2020-21.
In the past years, China
has imported a large quantity of ethanol, when domestic production has short
fallen of demand. However, with the E10 mandate in process, China needs to
increase its import of ethanol or corn from the international market. Earlier,
the US was the largest exporter of corn and ethanol to the Chinese market but
because of the trade conflict the imports declined and the US farmers lost
their largest market.
Impact of Phase one
Trade deal on Corn imports:
The phase one trade deal
between China and the US seems to have a positive impact on the ethanol and
corn markets in both countries. According to the deal, China has agreed to
purchase $ 40 billion of US agriculture which includes soybeans, wheat, corn,
canola and oats for the next two years. Furthermore, China is also planning to
commit to buy $200 billion from industries across agriculture like energy,
service, and manufacturing. Although the details of the deal are not yet
disclosed, the ethanol and corn industries and farmers in both countries seem
relieved on the agreements and expect great sales in coming future.