The approval of COVID-19 vaccines can improve the prospects of a quicker demand recovery for ethanol in the US and global markets, Brian Healy, director of global ethanol market development with the US Grains Council told S&P Global Platts.
In an interview with Platts, Healy said global demand for industrial ethanol from the US, which fell sharply in April and then saw a resurgence in the latter half of 2020, is likely to continue until the third quarter of 2021.
Demand for ethanol disappeared almost overnight in the US and other countries in early 2020 due to lockdowns put in place to contain the spread of the coronavirus, which restricted movement and therefore limited the need for gasoline, and by extension the need for ethanol blended into gasoline.
In April, US ethanol plants idled en masse following stay-at-home orders, taking more than 50% of the industry’s total capacity offline in the process.
Production, however, is on the road to recovery.
According to International Energy Agency, US ethanol production is expected to increase to 55 billion-58 billion liters over 2021-22 after contracting by 12% year on year in 2020 to 52 billion liters.
New ethanol demand avenues also opened, bringing some relief to the industry as markets emerged for industrial ethanol following a surge in demand for hand sanitizers and other sanitizing products amid the pandemic.
For some months in 2020, about half of US ethanol exports were destined for industrial purposes, which typically only make up about a quarter of US ethanol exports, a US Grains Council report said.
“I expect the current market dynamics for industrial ethanol to continue through the middle to the third quarter of the next year, especially if there’s any type of delay in a vaccine,” Healy said. “As just now, global demand for industrial ethanol is maybe slightly under peak demand.”
Though the rise in industrial ethanol demand was not enough to offset the demand destruction for fuel ethanol since the latter has a much larger market share, Healy said some ethanol plants in the US were able to avoid shutdowns or complete losses by converting their operations to cater for the former.
In the longer term, however, Healy said he expects fuel demand and demand from other applications to be the demand driver for ethanol.
“We’re going to have to look at these applications for ethanol used to replace methanol, and as the components of bioplastics because that’s what’s going to be the demand driver for ethanol going forward,” Healy said. “The world’s not going to need this level of hand sanitizer forever.”
Bioplastics are plastics made from plant-based, or other biological material — such as ethanol.
Healy also said that he is concerned about Brazil’s decision to reintroduce a 20% duty on ethanol imports from outside of the Mercusor bloc.
In September, Brazil, itself is a big producer of the biofuel, had extended a tariff-free quota on US ethanol imports for three months, but that quota was not renewed on Dec. 14 — closing a potentially huge supply pipeline.
The tariff-free quota had allowed the US to export 187,500 cu m of ethanol to Brazil.
“We are deeply concerned about the 20% tariff on US ethanol into the Brazil market,” Healy said. “The implementation of the 20% tariff is certainly going to have a negative impact on bilateral relationship between the two countries, which is unfortunate.”
According to Healy, Brazil’s move is concerning because the country has almost free access to US markets and is exporting almost 20 times more ethanol than what is being exported from the US.
“While we exported 4 million gallons, Brazil has exported 96 million gallons of ethanol to the US in the last six months,” he said.
Demand from global markets
Global demand recovery for fuel ethanol will largely depend on how quickly countries can resume their gasoline demand from driving, Healy said.
Global market sentiment was temporarily dampened recently as the UK tightened lockdown measures after a mutant, potentially more infectious variant of the coronavirus was found in the country.
However, Healy, added that there is a deficit of ethanol in China, and it may need to import ethanol in line with its current provincial policies.
China suspended a nationwide rollout of the E10 blending policy in early 2020, but several provinces have continued with the mandate at varying levels.
“There is an opportunity for China to import US ethanol as long as the MFN (Most Favored Nation) tariff rates are reduced to their 2016 levels of 5%,” Healy said.
In 2018, the Chinese government had increased tariffs on imports of US ethanol to up to 70% in response to US tariff actions, according to a US Grains Council report.