China, the world's second-largest corn consumer, is set to resume building new corn-based ethanol plants after a nearly decade-long ban, in a move that could help absorb the country's record stocks, industry sources said.
Beijing barred corn-based ethanol in late 2006 on concerns over food security at a time of rising domestic corn prices. China has since shifted to using sorghum, cassava and other non-grains to make ethanol, but expansion has been limited by a shortage of non-grain feed stocks.
Reviving corn-based ethanol would use up damaged stocks, while expanding production of the cleaner fuel could help reduce pollution, analysts and researchers said.
China is the world's third-largest fuel ethanol producer after the United States and Brazil, with output of 2.27 million tonnes last year. Industry estimates suggest about a fifth of China's gasoline is currently blended with ethanol.
Local governments have put forward proposals to build more than a million tonnes of annual corn-based ethanol capacity, mainly in the northeast provinces of Heilongjiang, Jilin and Liaoning, said one industry source.
The plans are still awaiting approval by the National Development and Reform Commission (NDRC), the source said.
State-owned food group COFCO Co Ltd and Heilongjiang province, China's top corn region, have agreed to build two ethanol production facilities, each with capacity of 300,000 tonnes a year, the Heilongjiang Daily reported last month.
With crude oil prices hovering around their lowest levels since 2009, the industry will need heavy subsidies from local and central governments to be economically viable, said Jing Chunmei, a researcher with China Centre for International Economic Exchanges, a state-backed think-tank.
"But still it should be feasible for rich cities, like Beijing and Tianjin, given their serious air pollution situation," Jing told Reuters, adding that gasoline blended with fuel ethanol emits less pollutants than conventional petrol.
The think-tank has proposed to top leaders the use of ethanol-blended gasoline in the capital of Beijing, Tianjin and Hebei to help reduce car emissions, which are blamed for serious air pollution.
"Fuel ethanol is the only solution for the large number of deteriorated corn stocks, which are not suitable for human or animal consumption," added Li Qiang, chief analyst with Shanghai JC Intelligence Co. Ltd (JCI).
Li estimated between 20 million and 30 million tonnes of corn were too mouldy to be used for animal feed.
China's state corn stocks are expected to climb further after the 2015/16 state stockpile scheme ends in April 2016. The government currently holds more than 150 million tonnes of corn.