June 25, 2007

China's ethanol mills ground to a halt on high corn prices

An ethanol mills in China have suspended production due to the high cost of corn coupled with low ethanol prices and more may be set to follow.

Companies are losing US$52 to US$65 per tonne of production, said Yu Xiurong, technology director with Jilin Tuopai Agricultural Products Development. Oversupply in the market is also causing the fall in prices, he added.

The Jilin based company, with annual production capacity of 50,000 tonnes of edible ethanol and 20,000 tonnes of premium edible ethanol, began suspending production in May.

China's ethanol prices soared to US$760 per tonne from US$525 per tonne between 2005 and 2006, driven by export demand. However, ethanol prices fell sharply after the government took away an ethanol export tax rebate in December 2006.

China's subsidy for ethanol mills was reduced from US$270 to US$170 per tonne in the past three years and may dry up by next year, an analyst said.

The rise in corn prices has been attributed to hoarding by Chinese corn traders.

The new harvest season, starting in July/August probably will ease the market and ethanol producers might resume production again, analysts said.

China has also pledged not to approve new grain-based ethanol fuel projects due to grain supply concerns. It has also urged companies currently engaged in corn-based ethanol projects to gradually shift to non-grain ethanol projects.

Ethanol consumes less than 10 percent of total corn fresh supply in China whereas the livestock feeding industry consumes nearly 70 percent of the supply.