2015 was a difficult one for US ethanol producers, prices came down from an eight year high in 2014 to a near-eleven year low in January of 2016. As with any market, when times are hard, it’s essential that players can adapt and evolve to keep business alive. So, eyes turn to export opportunities and to five countries in particular.
Traditionally, once supplies reach around 20 million gallons, cargoes start getting booked. Supplies are currently at around 23 million gallons. With sustained record high production levels putting downwards pressure on domestic prices, at the most recent National Ethanol Conference in New Orleans, US ethanol industry participants were readily eyeing export opportunities to provide the market with a much-needed boost in the form of buyers, and ultimately, revenue.
For both ethanol and biodiesel, rhetoric around the industry has shifted from a nearly one-sided focus on the Environmental Protection Agency (EPA) and Renewable Fuel Standard (RFS) to now touting the benefits of other biofuels. For biodiesel, it was touting its ability to reduce carbon emissions; for ethanol, it’s the benefits for octane-boosting.
The change is due, partly, to the fact that the new blending mandates are in place now, giving some stability and allowing both industries to focus on other aspects. However, the change in sentiment is also due to the fact that both fuels are at a disadvantage economically compared to fossil fuels.
So, as a way to address this evolving landscape, the industry is lining up five countries as key to the US export market: Brazil, the Philippines, China, India and Mexico. As the largest buyer of US product, Canada is already a well-established market, requiring less business development.
The big five
Brazil: Conveniently located, Brazil offers the US an export market that can be accessed with relative ease. In 2015, Platts-Kingsman estimated that the US exported around 440.4 million liters of fuel ethanol to Brazil, second in imports of US product behind Canada and a 4% uptick compared with exports to the region in 2014. Participants have described the Brazilian ethanol market as being in a constant state of either “feast or famine.” This supply uncertainty offers the US an opportunity to be the reliable constant supply of fuel into the country and it is one that US producers are looking to capitalize on.
The Philippines: In 2015, the Philippines were the third-largest importer of US fuel ethanol, increasing their buying power by 6% from 2014 and importing around 270.3 million liters. The cost of shipping, easy logistics and good demand in the region make the Philippines an ideal destination for US product. The low cost of shipping to the area is key for sellers; one US producer said that it costs as much to take ethanol from Iowa to Seattle as is does to take product from the West Coast to the Philippines. With such a strongly established trade route, market participants were keen for this to continue over the coming years.
China: Weighing in at No. 4 on the biggest importers of US fuel ethanol in 2015, China was the biggest mover on the list, increasing its imports by an astounding 1994% from 2014. As a country with a rapidly growing population, clamor is building from the widening band of middle classes to lessen the reliance on fossil fuels and improve air quality. Ethanol is seen as an answer to these calls, a positive sign for US exports. But the relationship is not an easy one. Most recently, China launched an anti-dumping probe into US DDGS imports, a by-product of ethanol, which saw imports fall by 9.6% month-on-month in December. The risk-reward premium of sending product all the way to China to potentially have it sit in a dock for an indefinite period of time is high. But when the going’s good, China is a veritable cash-cow of a market for US ethanol.
India: Following his election in 2014, Prime Minister Narendra Modi increased the blending mandate for ethanol in India, moving from E10 in 2015 to E20 by 2017. But in 2015, India’s effective blend rate fell far below the E10 mandate, reaching just 4.34%, and the country lacks the capability to produce sufficient ethanol domestically to meet the requirement. Alongside the blending mandate, at the 2015 COP21 summit, India also announced plans to cut its CO2 emissions per unit of GDP by as much as 35% from 2005 levels by 2035. To do this, India will need external support, and imports, and the US will be a main contributor on both fronts.
Mexico: At only ninth place on the list of importers, Mexico may not come across as an obvious country to focus energies on. But from 2014 to 2015, Mexico increased its buying of US ethanol by 14%, up to 116.2 million liters. The country, much like India, is going through energy reform and will need help to hit its mandates. They too lack the infrastructure to meet ethanol targets and the US is perfectly positioned, both geographically and logistically, to step up to the plate.