Market outlook: US ethanol export potential grows

07 March 2014 10:51 Source:ICIS Chemical Business

While overall US ethanol exports have declined in 2012 and 2013 on EU trade complaints, export markets such as Mexico, Brazil and the Middle East have strong potential

US exports of ethanol had their third best year in 2013 despite the imposition of punitive tariffs from the EU. Despite absolute declines in 2013 and 2012, there is the potential to grow certain export markets in the future.

US ethanol exports reached 630m gal (2.38bn litres) in 2013, said Ed Hubbard, general counsel for the Renewable Fuels Association (RFA). He made his comments during a presentation at the National Ethanol Conference in Orlando, Florida, US.

Exports were down from 739m gal in 2012 and from the record year of 2011, when the US exported 1.2bn gal, according to the RFA.

However, a large portion of that drop was due to imposition of a 9.5% tariff on US exports of ethanol to the EU, Hubbard said. “We lost a central market.”

In 2011, 300m gal of ethanol went to the EU alone. Nonetheless, the US still has a large number of diverse markets, he said.

Some of this is due to blending mandates, but other factors are driving exports as well.

In 2013, Canada was the biggest foreign market for US ethanol, at 1.22bn litres, said Cora Dickson, senior international trade specialist at the US Department of Commerce. The Philippines were second at 194.8m litres, she said, while Brazil was third biggest at 178.0m litres.

Brazil has emerged as a major US ethanol market because of rising demand from Otto-cycle-based automobiles which consume alcohol, said Plinio Nastari, CEO of ethanol consultancy DATAGRO. In addition, logistical constraints make it easier for the northern part of Brazil – including Belem, Fortaleza and Manaus – to import ethanol from the US versus the centre-south of the country, he said.

This is due to the so-called “custo brasileiro”, which refers to the additional costs that Brazilian companies face because of red tape, taxes and logistical constraints.

According to Brazilian sugar industry association UNICA, the harvest of sugarcane in the centre-south region of the country was 302,000 tonnes during the second half of January, 26% less than in the previous year. As a result, production of hydrous ethanol in the first second half of January was 16m litres or 41% less compared with the same period last year, it added.

The main sugar cane crushing-harvesting period in the key centre-south region of the country runs from April to November/December. Ethanol stocks are normally low during the December-April period between harvests with prices normally highest right before the start of the next harvest-crush season as stocks are normally the lowest at that time.

The United Arab Emirates was the fourth largest destination of US ethanol at 149.5m litres, Dickson said. The emirates make up a trading hub for the region, with ethanol being distributed throughout the region once it arrives.

Hubbard said the Middle East is importing ethanol to use as an octane booster. It is more cost effective for the Middle East to import ethanol from the US than to produce octane boosters domestically.

Looking ahead, Mexico could become a large potential market for US ethanol because it is close and because it is part of a free-trade pact, the North American Free Trade Agreement (NAFTA), Hubbard said. Also, Mexico currently is the world’s largest consumer of an alternative octane booster, methyl tertiary butyl ether (MTBE), Hubbard said. If Mexico switches to ethanol, it would open up a new and large market for US ethanol.

The US is the biggest ethanol producer, with 57% of the world’s output, Hubbard said. Brazil is second at 27%. The US is now the world’s lowest cost ethanol producer and its lowest cost producer of octane, said Chad Martin, CEO of Eco-Energy, an ethanol distributor.

Given the US positions in both ethanol and octane, exports represent a crucial market for the fuel at a time when it is no longer being driven by blender requirements in the US, Martin said. “Prior to 2010, demand was driven solely by blenders’ desire to blend ethanol into product,” he said.

The amount of ethanol blended into gasoline is approaching 10%, hitting the so-called “blend wall”. Many vehicles either cannot use ethanol blends above 10% or drivers cannot find fuel stations that sell the higher blends. Consequently, US demand will rise and fall with gasoline demand, Martin said. Given that US gasoline demand will likely be flat for several years, foreign markets represent a potential way to sell excess ethanol from the US.

Additional reporting by Renzo Pipoli in Houston

By Al Greenwood