November 30, 2007

China fuel shortage prompts corn ethanol production

China's serious shortage of oil products prompts ethanol producers to step up biofuel production, thus driving up corn prices despite an expected record harvest this year.

China deals with the worst fuel crisis in four years due in part of record oil prices for inputs and government-regulated price caps on refined products, which led refiners to cut processing volumes.

The cutbacks caused fuel rationing and queues in many of the service stations run by state-owned oil majors PetroChina and Sinopec.

As a result, many small ethanol plants have resumed operations and new ones had emerged. This added more than 800,000 tonnes of ethanol to supply in the northeast corn producing provinces, particularly in Heilongjiang and Jilin.

Corn prices are driven by ethanol plants demands.

Domestic corn prices jumped more than 10 percent this month to a fresh high, with prices in south province of Guangdong up 20 percent to US$284.3) a tonne.

Early this year, Beijing clamped down on small ethanol producers to curb price increases.

However, traders said, petrol stations were now blending more ethanol into gasoline to make up for the shortage.