China resumes export rebate for processed corn products from Sep

26.08.2016

China's General Department of Taxation said the country is to resume a 13% tax rebate for exporting 10 corn by-products, including undenatured ethanol with purity above 80%, starting from September 1, according to a statement on the Ministry of Finance website.

The move is mainly aimed to clear the huge corn stockpile in China, which is reported to be around 260 million mt as of end-July, accounting for half of the entire food storage. The export rebate policy was first launched on June 1, 2009, and has been cancelled twice during the seven years.

Besides ethanol, the initiative also applies to corn starch, residues from producing starch, monosodium glutamate (MSG), pentaerythritol, mannitol, sorbitol, lactic acid with its salt and ester, gluconic acid with its salt and ester, and lysine, with rebate rates all at 13%.

EXPORT INCENTIVE

By providing a new financial incentive for exporters, the policy could increase the likelihood of these products being exported, but in the case of ethanol, traders mostly feel this is not yet close to happening.

One main concern from international traders regarding the policy is whether the feedstock to produce the ethanol is genetically modified.

Most buyers from Japan and South Korea would prefer to use ethanol from molasses or sugarcane instead of corn, one South Korean trader said Thursday. Therefore, China's corn ethanol might not be very popular for industrial- and beverage-sector consumers in North Asia.

Moreover, the FOB China price would not be competitive enough to work in the international market, according to market sources.

"I got several indicative offers on a CFR Korea basis this morning from China, which are around $20-$30/cu m higher than those from Brazil," said the source. One of the major advantages from China is faster delivery, but not many buyers would be willing to pay such a premium for it, he added.

"It is possible to denature the undenatured ethanol after the shipment. However, different governments have various restrictions on the denaturing process, which would not be easy for Chinese sellers," a Geneva trader said Thursday.

LITTLE IMMEDIATE IMPACT

The rebate which was discontinued in January 2016 only to be reinstated last week had limited impact on corn and corn-related markets at that time, said one corn market source, predicting this scenario could be repeated.

The only product that could be competitive in the export market as a result of the initiative could be corn starch, which could be sold into the Japanese and South Korean markets. However, it would face tough competition from American corn starch which is of a better quality, said another source in the corn market.

Meanwhile, as a policy measure aimed at reducing Chinese corn stocks, traders said that while it would consume some corn stocks, the main issue was the ever-increasing supply of corn within China, which was the main driver of high domestic corn inventories.

The Geneva trader added a note of caution, saying that he believed the export rebate policy would only be active until December 13, 2016.


platts

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