January 2, 2007

 

China corn expanding despite government ruling

 

 

Chinese corn processors have been betting on bio-fuel production despite government curbs on expansion of the industry.

 

Earlier December, worries of grain supply shortages prompted the government to halt approval of new corn-processing projects.

 

However, huge profits have lured investors and local governments to continue doing so, with an annual output of more than 10 million tonnes of fuel ethanol planned, almost 10 times the current 1.02 million tonnes.

 

Ethanol-mix gasoline is expected to account for half of domestic gasoline consumption by 2010, according to government estimates.

 

Meanwhile, some processors dodge policy restrictions by claiming to make alcohol, which could be conveniently turned into fuel ethanol once the government eases limits.

 

China's corn processors have been expanding their production capacity of alcohol by an estimated 1.6 million tonnes per year, according to China National Grain and Oils Information Centre.

 

Other corn processors are turning to producing profitable downstream petrochemical products, such as glycol.

 

The government wants to encourage the development of bio-fuels with non-grain crops, like sorghum and cassava, amid concerns of grain supply and price stability.

 

However, enterprises, especially in corn-rich northeast China, still favour corn processing for easier access to raw materials, low costs and mature technologies, while local governments tend to approve new projects to draw investment.

 

China started to develop fuel ethanol as an alternative energy in 2000. Oil price hikes and government subsidies boosted fuel ethanol production from 30,000 tonnes in 2002 to 1.02 million tonnes in 2005.

 

China would become a net importer of corn in the next two years, according to research by the Dalian Commodity Exchange and the National Grain and Oils Information Centre.