Fuel ethanol subsidies will also look at food prices in addition to oil prices
In 2008, the fuel ethanol industry in China is facing significant financial challenges, with some production companies losing several tons of profit for every ton of sales. According to a report from Henan Tianguan Enterprise Group Co., Ltd., on December 4, the government plans to adjust its fiscal subsidy policy for fuel ethanol once again. This new policy will not only take into account oil prices but also factor in food price fluctuations when determining subsidies.
Last year, the Ministry of Finance issued "Implementation Opinions on the Development of Bio-energy and Bio-chemical Finance and Support Policies," which outlined the establishment of a risk fund system and an elastic loss subsidy mechanism. If oil prices exceed the normal production reserve price set by the enterprise, the state will no longer provide loss subsidies, and companies are required to maintain their own risk funds. However, if oil prices fall below the guaranteed reserve level for an extended period, the government will activate the flexible subsidy mechanism to compensate companies.
The updated subsidy policy introduces a reference protection price based on domestic gasoline price changes. When the price of fuel ethanol falls below this threshold, the government will offer subsidies to prevent companies from suffering losses. Despite this, Tianguan Group points out that rising food prices, especially for corn, remain a major challenge for fuel ethanol producers. Since the beginning of this year, global corn prices have surged, impacting the economic viability of fuel ethanol. Nevertheless, with global energy shortages driving demand, the long-term outlook for fuel ethanol remains positive.
According to Tianguan’s analysis, the amount of subsidies provided to companies will gradually decline as the government moves toward full marketization of fuel ethanol production. In 2007, the state subsidy per ton of fuel ethanol dropped to 1,373 yuan, down 255 yuan from 2006 and 500 yuan from 2005.
Since the introduction of ethanol gasoline in China, fixed-point fuel ethanol producers have been receiving financial support due to the mismatch between national pricing for gasoline and ethanol. The price of fuel ethanol is set at 90% of the ex-factory price of 90-octane gasoline, adjusted by a coefficient of 0.911. As international oil prices rise, domestic oil price adjustments lag behind, while corn prices continue to climb. This has led to a situation where it now costs hundreds of yuan to produce and sell one ton of fuel ethanol.
Currently, subsidized fuel ethanol companies in China include Jilin Fuel Alcohol Co., Ltd., Henan Tianguan Group, Anhui Fengyuan Biochemical Co., Ltd., and Heilongjiang China Resources Alcohol Co., Ltd. These firms are navigating a complex landscape shaped by fluctuating input costs, evolving subsidy policies, and the broader energy market.
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