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China Suspends Biofuel Initiative
USAgNet - 01/13/2020

China has suspended its plan to implement a nationwide gasoline blend containing 10% ethanol this year, three sources briefed on the matter said, following a sharp decline in the country's corn stocks and limited production capacity of the biofuel.

According to Reuters, the reversal is a heavy blow to domestic producers that have built new plants, as well as biofuel exporters, including the United States and Brazil, which were looking to benefit from growing Chinese demand. China was expected to increase imports of U.S. ethanol after the recent announcement of Phase 1 of a trade agreement.

Beijing announced in September 2017 that the national gasoline supply would contain 10% ethanol from 2020, part of a broad reform of its corn industry that at the time was suffering from a massive surplus.

But at a meeting in late December with ethanol producers and oil majors, China's National Development and Reform Commission (NDRC) said it will now halt the rollout of ethanol-gasoline supplies beyond the current handful of provinces that have already implemented full or partial blends, according to two of the three sources briefed on the meeting.

Beijing's mandate - known as the E10 target - was conceived as a way to digest the country's huge state corn reserves and reduce pollution in the world's largest car market by using the cleaner-burning fuel. China is now unlikely to require large ethanol supplies without the mandate.

The United States exported about 20% of its fuel ethanol to China in 2016, trade worth about $300 million that year. American shipments have since plunged to a trickle, which was expected to be reversed following the announcement of Phase 1 of the recently announced trade deal.

Beijing hiked import duties on ethanol in 2017 to 30% and then added trade war tariffs on U.S. cargoes twice during 2018, amounting to another 40%.

In 2018, China was the eighth-biggest market for U.S. ethanol exports, taking up 52.9 million gallons of the corn-based fuel, according to the RFA. It also bought 290,173 tonnes of U.S. corn, U.S. Agriculture Department data shows.

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