"Growth slowdown of downstream industries has resulted in the sharp decrease in bio-fuel demand. China's logistics industry experienced a great slump in 2008. Economic uncertainties also brought about stagnated growth in the Chinese passenger vehicle market in the fourth quarter of 2008. The sharp decline in crude oil price also lowers the price of bio-ethanol and bio-diesel products making the situation tougher in China," he said.
Xie says, "For 2009 and 2010, the shortage of feedstock remains the top challenge for the Chinese bio-fuel industry. However, most of these shortages can be resolved as more entrepreneurs join the market in the forecasted period. For bio-ethanol, with feedstock transitions from corn and wheat to non-food celluloses and potatoes, all major bio-ethanol manufacturers are forced to utilize alternative feedstock. For bio-diesel, the unstable supply of waste cooking oil may threaten the continuity of bio-diesel production. Only some leading bio-diesel producers have effectively managed the supply chain to ensure the stable supply of feedstock."
According to Xie, government support is vital for the healthy development of the Chinese bio-fuel industry. Subsidies, tax exemptions, or allowances help increase the competitiveness of producers as well as ensure their continuous development.
"Although the non-food feedstock has been advocated since 2006, China does not impose bio-fuel producers to immediately adopt non-food feedstock. A step-by-step plan has been devised to conduct the gradual shift. Therefore, during 2007 and 2008, the Chinese bio-fuel market maintained a CAGR of 15.5 percent in terms of volume. Under the impact of the global financial crisis, growth has declined; but from a medium-to-long term perspective, the bio-fuel market is likely to maintain moderate growth," he says.
In terms of industry specifics, Xie says that the exploitation of new feedstock will enhance the future of Chinese bio-fuel market. "New feedstock, including sweet potato and sugar cane for bio-ethanol and Jatropha for bio-diesel, feature low carbon dioxide emission, good weather endurance, and easiness of plantation. This new feedstock is believed to only be available in great quantities from 2010 to 2012 with leading industry producers, like Gushan Environmental Technologies Co Ltd, encouraging the research and development of Jatropha seeds. Similar pilot studies are also being carried out for sweet potatoes in China," he adds.
Industry consolidation is likely to be facilitated by big participants in the current market. He continues, "Although the bio-ethanol industry is still entirely operated by state-owned enterprises, there have been more active M&A cases among the producers and distributors. As the operator of national grain and cereal station, COFCO (China National Cereals, Oils & Foodstuffs Corp) is the most active bio-ethanol producer in China. COFCO acquired the Heilongjiang alcohol factory from China Resource Vanguard Group in 2007 and expanded its capacity from 100 kt to 150 kt p.a. Together with other existing bio-ethanol plants in Jilin, Hebei, and Guangxi, COFCO integrated the Heilongjiang plant into its national production network."
"The Chinese bio-fuel industry is entering an adjustment period in 2009 with declining prices. However, given China's increasing demand for energies, the bio-fuel market is expected to recover gradually from the current recession in late 2010 to early 2011. The growth rate of the Chinese bio-fuel market is expected to be around 9.0 percent in 2009," Xie says.
During the forecasted period, China is to complete and improve its current bio-fuel laws and regulations system. According to Xie, in addition to the national standard on bio-ethanol, China issued the standard for B100 (without blend of mineral diesel) bio-diesel in May, 2007 and is currently working on the B5 and B10. The effectiveness of new bio-fuel standards is believed to improve the industry and social environment.
"The plummeting of export businesses, the decline of crude oil price, and the unavailability of new feedstock are all restraints for the bio-fuel business in China. Bio-diesel is expected to fare better than bio-ethanol, due to less government interference and better processing technologies," he adds.
Gushan Environmental Technologies Co Ltd, the leading bio-diesel producer in China, still managed to remain profitable during 2008. With over 60 percent of China's total bio-diesel output in 2008, effective feedstock control, innovative processing technology, and steady market expansion, the company has been awarded the 2008 China Frost & Sullivan Award for Market Leadership.
