Fuel Ethanol’s Fortunes in 2021 Hinge on Policy Edicts in Philippines, China

A rise in fuel ethanol imports could be on the cards for the Philippines in 2021 if the country’s domestic consumption quotas are lowered, while the impact of the Biden presidency on China’s willingness to resume large-scale fuel ethanol imports from the US is proving harder to discern.

Import prices fell further below domestic prices in the Philippines in 2020, but lockdowns to contain the spread of COVID-19 in Manila and other major cities considerably reduced demand for fuel ethanol over the same period.

The Philippines’ local monthly allocations or LMAs that require oil companies to purchase a fixed volume of domestically-produced fuel ethanol each quarter before turning to cheaper imports had been on a steady uptrend over 2018, 2019 and into 2020 before the impact of the pandemic prompted a major reversal in Q4.

Initially 83,699 cu m of ethanol was allocated to the major domestic purchasers in Q4, but this was revised down to 73,800 cu m due to a domestic feedstock shortage and ethanol production being diverted to disinfectant, which prompted a scramble for fuel ethanol imports at the end of the year.

The LMAs are set each quarter, and oil companies are allocated a purchase quota proportionate to their market share of the retail gasoline market. They are required by law to exhaust their domestic allocation before importing cheaper cargoes to cover remaining requirements

The domestic ethanol price averaged Pesos 60.12/liter over January-November, equating to $1,250/cu m, while S&P Global Platts calculated the average import price over the same period 65% lower at $434.97/cu m.

While the Philippines’ Department of Energy had been encouraging blenders to consume more domestic ethanol in recent years by raising LMA volumes, the LMAs issued for 2021 point to a weakening of that stance. A total 84,200 cu m of LMAs have been allocated for Q1 2021, down from 95,400 cu m in Q1 2020, and market sources said they did not expect the LMAs for the subsequent quarters to increase significantly against the COVID-19 backdrop.

Further revisions to the LMAs in 2021 can also not be ruled out, which could potentially result in even higher imports of fuel ethanol.


Aside from the Philippines’ import requirements, the other key question in the ethanol market in 2021 is, will China offtake US ethanol?

Traders and market participants had been fervently hoping throughout 2020 that phrase one of the China-US trade agreement would see China returning to buying substantial volumes of US ethanol. Instead, China became an exporter of ethanol in the year for disinfectant purposes amid the pandemic.

Prices of domestic undenatured ethanol surged above Yuan 8,000/mt ex-factory in 2020 as global demand for disinfectant soared. Exports of ethanol surged to 601,890 cu m over January-October from just 21,221 cu m in full-year 2019. Only a couple of cargoes of US ethanol entered China over the same period, totaling 9,015 cu m.

With China maintaining a 70% import duty on US denatured ethanol in the year, any inflow of US ethanol to China remained difficult at best. A Biden presidency might see a thaw in relations in 2021, which traders are hoping for.


In Pakistan, producers are pegging ENA grade ethanol in bulk at above $900/mt KOB Karachi for Q1, equating to over $700/cu m CFR Ulsan, a price level uncompetitive in Northeast Asia against Brazilian ethanol at $500-$600/cu m.

With buyers in Europe covered until Q1 2021 and Far East buyers until Q2 unwilling to chase offers for Pakistani ethanol, it is likely Pakistan’s ethanol prices will decline in order to find willing buyers.

Sales of Pakistani ethanol surged in 2020 on the back of the unprecedented demand for disinfectant worldwide, with prices of ENA grade ethanol hitting more than $1,400/mt FOB Karachi at times. Such demand is unlikely to be repeated in 2021.

Meanwhile, major buyers in Ulsan are mostly covered till Q2 2021 and are preparing to negotiate for Brazilian fresh cargoes in February, ahead of the 2022-23 sugar season starting on April 1.

Platts Analytics had revised its forecast for the Brazil Center-South ethanol mix to 55.5% from 57.5% as sugar had been paying more than ethanol.

Brazilian hydrous ethanol values on an FOB Santos basis closed at $429/cu m Dec. 18, after climbing as crude oil values rallied. With higher Brazilian ethanol and robust sugar values, buyers in Ulsan could be paying a higher price for Grade B ethanol in the coming season, market sources said

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