Heavy pollution and smog is consuming the air in major cities like Beijing. Just this week, a new study showed people in northern China are losing years off their lives compared to people living in southern areas, due to higher concentrations of air pollution.
Answering the call for clean air, China plans to dramatically boost ethanol use in its gasoline supply, moving to E10 blends by 2020.
Considering China is the world’s largest car market
, and currently ranks number three for fuel ethanol consumption, Peter Meyer of S&P Global Platts says this may be one answer to moving corn markets higher.
“We (PIRA) think that they [China] only have capacity to produce maybe a billion gallons of ethanol, and that would have to be increased ten-fold to get to this E-10 mandate,” he said.
China’s ethanol announcement marks the first hard deadline. Meyer cautions there are still several unknowns with this announcement, including when this potential Chinese ethanol boom will actually hit.
“The problem is even with these (E-10) specifics, it’s hard to say what’s behind the wall,” said Meyer. “The fact of the matter is that if you read some articles about the idea, they say 2 billion gallons of ethanol production are sitting idle,” he said. “If you look at our numbers, or some other numbers that are out there, it’s about 1.1 billion. There are so many moving parts here, but it certainly is not a negative [for corn prices] if this goes forward, that’s for sure.”
PIRA Energy, a subsidiary of S&P Global Platts has explored the potential impact, with sources telling PIRA that implementing the mandate by 2020, just 2.5 years away, is “ambitious.” However, if China holds true on its goal of 2020, it would create a boom in demand for global ethanol.
“I would imagine that they are probably going to start out by importing ethanol initially, and then as they start to ramp up their production they will see how much corn they can produce,” he said.
Meyer says if China doesn’t have the production capacity to supply the mandate domestically, that would mean the world’s largest consumer of soybeans will initially be in the market for ethanol imports.
“I think it starts to hit us in 2019, because if they start to ramp up in ’20, we’re not going to see it until ‘19, so we’re still going to have to get through the ’18 crop year before we start to see it,” he said.
Meyer says the carryover situation is one reason he thinks…