Corn Products China News 1702

Date: 2017-03
Pages:26
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Chinese fuel ethanol industry may jump explosively

On 15 Feb., 2017, the People’s Government of Kailu County, Inner Mongolia and Inner Mongolia Xuri Tala Culture Industry Co., Ltd. (Xuri Tala) signed on the 300,000 t/a fuel ethanol project. With investment of USD175.04 million (RMB1.20 billion), the project will be started in June 2017 and put into production before the end of 2018.

Xuri Tala is the subsidiary of Inner Mongolia Shiqi Group Co., Ltd. (Shiqi Group), a solely state-owned enterprise which is mainly engaged in textile and clothing businesses. Shiqi Group’s marching into the fuel ethanol industry is not only because it enjoys geographic advantage (located in Inner Mongolia, one of China’s main corn areas) and seeks for business transition, but also because it is optimistic about vast potential for future development of Chinese fuel ethanol industry.

Huge inventory of raw material

Since China has implemented the purchase policy of corn for temporary storage for 8 years, it has accumulated huge inventory. Although the state conducted auctions and directional sales of corn, the domestic corn stockpile still hit 236 million tonnes. Such huge inventory means a lot of spending. What’s worse, near 47% of this extra corn was produced in 2014 or even earlier, of which over 30 million tonnes were harvested in 2012 and 2013. Particularly, the 3.39 million tonnes produced in 2012 cannot be used for feed and starch production, but only for ethanol processing. The remaining 27.36 million tonnes produced in 2013 were also difficult to sell. Therefore, directional sale of this overstored corn at low price for deep processing companies may be the only way to consume the huge inventory. Shiqi Group, as a state-owned company, can get abundant corn at low price based on its advantage.

Preferential policy

In 2016, cutting corn inventory became the main focus for the country. As the downstream sector of the corn industry, the ethanol sector enjoys benefits from various kinds of policies.
Dec. 2016 – The Ministry of Commerce of the People’s Republic of China amended the 2015 version of Catalog of Industries for Foreign Investment, decontrolling the access restrictions on foreign investment in corn deep processing and fuel ethanol industries
Nov. 2016 – Jilin, Liaoning, Heilongjiang provinces and Inner Mongolia started to implement corn deep processing subsidy policies, a subsidy amount at USD14.59/t-USD43.76/t (RMB100/t-RMB300/t)
Aug. 2016 – The State Council announced that since 1 Sept., 2016, the export tax rebate rate of corn products, namely corn starch and ethanol would be reset back to 13%

Strong demand

In Nov. 2016, the Organization of Petroleum Exporting Countries (OPEC) meeting was held in Vienna. All parties agreed that the daily output of crude oil should reduce by 1.20 million barrels to 32.50 million barrels within six months since 1 Jan., 2017. According to data from the International Energy Agency, in Dec. 2016, oil output of the OPEC was 33.09 million barrels a day, and crude oil inventory has dropped for 4 consecutive months. “”As the global oil sale turns good, if the OPEC and other oil producers can cut output to the aforementioned level, the international crude oil market will be in over-demand in H2 2017. This will spur up demand for fuel ethanol,”” disclosed an industry insider.

At present, the domestic fuel ethanol industry is small, which only takes up 8% of the national consumption. In the US, the figure is 44%. It means that the domestic fuel ethanol industry still has broad space for development. It is predicted that the industry will usher in a explosive growth in the future.”

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