India's ethanol trade may take a cane-cut
There is an opportunity to be grabbed, with Brazil increasing its sugar production over ethanol in 2007. However, India is unlikely to take advantage since sugarcane prices are highly regulated in the country.
By TNN |
PUNE: There is an opportunity to be grabbed, with Brazil increasing its sugar production over ethanol in 2007. However, India is unlikely to take advantage since sugarcane prices are highly regulated in the country.
High cane prices push up the cost of production, since feedstock prices account for 70% of production costs. Although India figures in the list of potential exporters of ethanol, it is unlikely to be able to participate in the global trade because of the regulated nature of the domestic market. Hence, indications are that over the next decade, Brazil and Argentina will emerge as suppliers to the world ethanol market.
“At the moment, India is a self-sufficient market for ethanol although it could become a net exporter. If it is unable to produce enough domestically, the government may choose to limit the roll out of its ethanol blending programme, from an all-India programme to just a few states. It is unlikely that the government will allow ethanol imports,” Christoph Berg, deputy director, FO Licht, an information specialist on agriculture and food policy, markets and trade, said.
Mr Berg, after making a presentation on the fuel ethanol balance for the next ten years at Praj Industries, a global player in the turnkey installation of ethanol plants, said they are projecting a six-fold rise in ethanol production globally.
This will make the Asia-Pacific and the European Union regions net importers while the fuel-ethanol exporting countries will be mostly in South America. Africa could spring a surprise and turn net exporter in the next decade from being a net importer now, Mr Berg added.
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The African countries to watch are sub-Saharan Africa, Zimbabwe and South Africa because they are cost efficient producers of sugar cane. In the Asia-Pacific region, the demand for ethanol will be lead by Japan, South Korea, Taiwan and to some extent, China. In the EU, imported ethanol already has a market share of 20-25%.Mr Berg indicated 2006 was the golden year for global ethanol production, a growth fuelled by several global phenomena. These included the US phasing out MTBE as a fuel additive in May 2006 and replacing it with ethanol, the EU starting its investment drive for ethanol as national governments mandating use of the additive and countries in the Asia Pacific region confirming ambitious usage targets.
Brazil was the major source for the US to source its fuel-ethanol requirements, with imports in just the month of September 2006 at 3 million barrels, Mr Berg said. With the May 2006 introduction of ethanol in place of MTBE, the US has been a deficit market but is expected to soon turn surplus as capacities are being added very quickly, Mr Berg pointed out.
Given the market opportunity, Wall Street has become a major investor in the sector, pumping in $2 billion into the sector. The worry is that this investment could move as swiftly out of this sector into another more remunerative field, posing challenges not just for the US’ ethanol industry but also for the family farm.
Pointing to the EU approach, Mr Berg said that the oil companies have been locating ethanol plants close to their refineries, which reduces logistics costs. Coming to the Asia-Pacific region, Mr Berg said most countries in the region have introduced some bio fuel/ethanol practice.
It is the equilibrium price, of $400-450 per cubic metre free on board (fob) that will ultimately determine the future of the industry. The importing side will add $200-250 per cubic metre as freight costs and duties to the fob price and then it must compete with petrol or diesel.
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