Ethanol: The Arbitrage Spread Between the Northeast and South China Markets in August Reached a High this Year, and the Market Outlook May Narrow

Compared with the Northeast and other places, the price difference between the Henan and Northeast ethanol market prices and the South China market has widened. In early August, the price difference between the Henan and South China markets was the largest at 700 CNY/ton, and the largest price difference between the Northeast and South China markets was 920 CNY/ton. However, since mid-August, the price of ethanol market in South China has accelerated, and it is expected that there is still a slight possibility of weakness in September. In addition, with the recent pressure on corn ethanol costs in Northeast and Henan, the fluctuation may slow down. It is expected that the arbitrage space from the market to South China may close. narrow.

The arbitrage space from northern Henan to southern China is relatively stable, but the transaction advantage is not as good as that of the northeast

In August, the price of premium corn ethanol in northern Henan continued to decline, but the decline gradually narrowed. The price difference between northern Henan and southern China reached a recent monthly high of 700 CNY/ton in early August. As shown in Figure 1, with reference to the 95% price difference between Henan and Guangdong (corn/wheat), the arbitrage between Henan and South China stabilized in August, and the price difference between the two fluctuated at 600-700 CNY/ton. Because the cost advantage of automobile transportation from Henan to South China market is relatively inferior to that of Northeast shipping, the source of goods from other provinces in South China market in August is mainly Northeast shipping.

In August, the arbitrage space from Northeast China to South China increased first and then decreased, and subsequent deposits may narrow

In August, the arbitrage space from Northeast China to South China increased first and then decreased. As of August 29, the average monthly price difference between the trimming price in Northeast China and corn and wheat ethanol in Dongguan, Guangdong was 805 CNY/ton, an increase of 15.8% from 695 CNY/ton in July. Because the South China market fell less than the Northeast in July, as of the beginning of August, the price difference between the two reached the largest price of 920 CNY/ton this year. Although the spread has narrowed after mid-August, there is still room for theoretical arbitrage between Northeast China and South China.

In the future, the arbitrage space from northeast to south China may be narrowed. There is sufficient supply in the South China market, and the oversupply may continue. First of all, the supply is expected to increase. From the perspective of supply from other provinces, the arrival volume of Northeast corn ethanol in the Guangdong market in August is about 4 times the average monthly arrival volume in South China from January to July. , and it is still expected to arrive in Hong Kong in September. In September, Guangxi COFCO still has an overhaul plan, but some cassava ethanol production enterprises plan to restart, and the operating load rate is expected to drop slightly compared with August. Before the Mid-Autumn Festival, the rebound of downstream demand was slow, and the price competition between spot and other provinces in South China still existed. The supply of cassava ethanol in Guangxi and Guangdong was active, and the market in South China from the end of August to September may be adjusted in a narrow range and weak. As the price of corn in Northeast China stabilizes in the stage, the cost pressure in Northeast China will increase, and the room for adjustment of ethanol price may be limited. It is expected that the price difference between the Northeast and South China markets may be corrected at a high level.