China hikes import duty on US denatured ethanol by 15% to 45%
Source: By Srijan Kanoi and Christina Siantar, Platts • Posted: Monday, April 2, 2018
Since the announcement of the possible hike on March 23, Asian fuel ethanol price has dropped by $12/cu m to $492/cu m at the Asian close last Thursday, S&P Global Platts data showed.
“Major fuel ethanol importers in China were waiting on the sidelines last week to get more clarity before booking new cargoes from the US,” a trader said.
The front-month US ethanol futures have been under pressure after the March 23 announcement, falling from $1.47/gal ($388.33/cu m) on March 22 to $1.4589/gal ($385.4/cu m) Thursday, Platts data showed.
The increase in import duty will close the arbitrage window to move fuel ethanol to China from the US, market sources said.
The offers for importing anhydrous denatured ethanol from the US to China are at around $585/mt ($461.6/cu m) CFR main ports China. After adding the 45% import duty and the 17% VAT, the cost of imports come to $992/mt ($783/cu m), which exceeds China’s domestic price of Yuan 6,195/mt ($986/mt or $778/cu m).
“The hike in import duty [for denatured ethanol from the US to China] to 45% will kill the imports into China, much like it did in 2017,” a trader said.
China’s ethanol imports in 2017 were severely impacted by the 30% import duty that was imposed on denatured ethanol in January 2017. As a result, denatured ethanol imports into China had dropped from 871,829 cu m in 2016 to 8,697 cu m in 2017, China’s General Administration of Customs showed.
Also, exports from the US to China for denatured fuel ethanol had drastically decreased from 854,392 cu m in 2016 to only 39 cu m in 2017, the data showed.
China’s ethanol imports surged by 64% month on month to 197,652 cu m in February — the highest in 21 months, data released last week by the General Administration of Customs showed.
Over January-February, China imported 280,317 cu m of denatured ethanol from the US — exceeding earlier market expectations of 200,000 cu m of US ethanol fixed for delivery to China during Q1, market sources said.
The rise was attributed to lower ethanol prices in the US during the fourth quarter which opened up the arbitrage window despite China’s 30% import duty on denatured ethanol, resulting in Chinese companies ramping up purchases for Q1 delivery, market sources said.
The 45% import duty on US fuel ethanol is unlikely to benefit other ethanol producers like Brazil since the prices there are uncompetitive.
“With the strong [fuel ethanol] domestic prices in Brazil, China will not import from there,” a trader said. In Brazil, the ANP anhydrous ex-mill Riberao price with taxes was at Real 2030/cu m ($614/cu m) Thursday, Platts data showed.
The 15% hike is part of a wider statement released Monday, consisting of a list of 128 commodities that will be subject to duties. The hike will impact about $3 billion in US imports to China.
–Srijan Kanoi, srijan.kanoi@spglobal.com
–Christina Siantar, christina.siantar@spglobal.com