London +4420 814 42225
Moscow +7495 543 9194
Kiev +38044 599 2950

Our Clients

Order Informer

Home > News >

Long, strange trip: How U.S. ethanol reaches China tariff-free

February 11/2019

MOSCOW (MRC) -- In June, the High Seas tanker ship loaded up on ethanol in Texas and set off for Asia, said Hydrocarbonprocessing.

Two months later - after a circuitous journey that included a ship-to-ship transfer and a stop in Malaysia - its cargo arrived in China, according to shipping data analyzed by Reuters and interviews with Malaysian and Chinese port officials.

At the time, the roundabout route puzzled global ethanol traders and ship brokers, who called it a convoluted and costly way to get U.S. fuel to China. But the journey reflects a broader shift in global ethanol flows since U.S. President Donald Trump ignited a trade war with China last spring.

Although China slapped retaliatory tariffs up to 70 percent on U.S. ethanol shipments, the fuel can still legally enter China tariff-free if it arrives blended with at least 40 percent Asian-produced fuel, according to trade rules established between China and the Association of Southeast Asian Nations (ASEAN), the regional economic and political body.

In a striking example of how global commodity markets respond to government policies blocking free trade, some 88,000 tonnes of U.S. ethanol landed on Malaysian shores through November of last year - all since June, shortly after China hiked its tax on U.S. shipments. The surge follows years of negligible imports of U.S. ethanol to Malaysia.

In turn, Malaysia has exported 69,000 tonnes of ethanol to China, the first time the nation has been an exporter of the fuel in at least three years, according to Chinese import data. Blending U.S. and Asian ethanol for the Chinese market undermines the intent of Beijings tariffs and helps struggling American ethanol producers by keeping a path open to a major export market that would otherwise be closed.

Global commodity markets are incredibly creative in finding ways to ensure willing sellers are able to meet the demands of willing buyers, Geoff Cooper, head of the Renewable Fuels Association, said in a statement to Reuters. The group represents U.S. ethanol producers.

In at least two cases examined by Reuters, including that of the High Seas, blending of U.S. ethanol cargoes with other products appeared to have occurred in Malaysia before the cargoes were shipped on to China, according to a Reuters analysis of shipping records and interviews with port officials.

Chinese merchants including the state-backed oil company Unipec notified Chinese authorities about the unusual activity last summer - which represented competition they had not anticipated under the tariff scheme, according to two industry sources.

Unipecs parent company Sinopec did not respond to requests for comment. A spokesman for Chinas General Administration of Customs declined to comment. Norazman Ayob, deputy secretary general of the Malaysian trade ministry, confirmed that Malaysia exported ethanol to China this year. The ministry was unable to confirm whether it had been mixed with U.S. fuel, he said, but noted such blending would be legal under the ASEAN-China pact.

Malaysia has no track record of significant domestic ethanol production, so it is unclear where the ethanol blended with the U.S. product originates.

Additional U.S. ethanol has flowed in unusual volumes to other destinations since Trumps trade war began, including other ASEAN member nations the Philippines and Indonesia, according to shipping and trade data, though Reuters could not confirm its final destination.
Author:Anna Larionova
Tags:petroleum products, petrochemistry, Crude oil.
Category:General News
| More

Leave a comment

MRC help


 All News   News subscribe