Brazil ethanol sales to Japan to sputter as Tokyo bends to Trump

By Marcelo Teixeira

Brazil ethanol producers stand to lose a big chunk of their largest market, Japan, to U.S. agribusiness, after Tokyo bent to pressure from U.S. President Donald Trump and tweaked requirements for gasoline additives.

Until recently, nearly all the ethanol used to make ethyl tert-butyl ether (ETBE) for Japanese consumption has come from Brazil, whose sugarcane-based ethanol boasts lower emissions of greenhouse gas carbon dioxide than U.S. ethanol made from corn.

But in mid-April, Japan's government loosened emissions requirements on ETBE while its prime minister was visiting the United States. Brazilian cane industry group Unica accused Tokyo of backsliding on environmental controls.

But American ethanol producers cheered the move, a rare trade victory for U.S. farmers who have suffered much of the blowback from Washington's escalating trade row with China.

"For the first time, the U.S. ethanol industry will have the opportunity to compete for a portion of Japan's fuel blending market," said Emily Skor, head of Washington-based ethanol group Growth Energy, in a statement.

Brazilian cane producers are the latest casualties in a trade dispute kicked off by Trump last year.

China boosted imports of Brazilian soybeans and threatened tariffs on U.S. soybeans. Steep duties on U.S. sorghum imports made shippers find new homes for 20 bulk vessels worth more than $200 million that were already en route to China.

Japan's new ethanol rules started with a public consultation last year to review fuel blending standards.

However, a senior Brazilian diplomat said on condition of anonymity that Brasilia had expected the move as a way for Japan to ease Trump's concerns about that country's trade surplus with the United States.

"Due to the large U.S. trade deficit, it was clear that ethanol could be one of those products used to reduce the imbalance," the diplomat said.

Japan consumes nearly 45 percent of Brazil's ethanol exports, or about 800 million liters annually, including the volumes used for ETBE, much of which is made by U.S. producers.

Much of the ETBE used in Japan is already made in the United States using Brazilian sugarcane ethanol, so the new rules should make it easy for producers to switch quickly to U.S. corn-based sources.

A U.S. Department of Agriculture (USDA) report said the Japanese policy change could create a market opportunity for U.S. ethanol producers of 366 million liters, valued at around $170 million.

"In the end, whatever you take away from Brazil you give to the U.S.," an ethanol export trader said.

The shift adds to rising tension in the ethanol industry. Last year, Brazil slapped a 20 percent tariff on U.S. exports in an effort to slow south-bound flows.

Even with the tariff, U.S. ethanol exports hit a record high in February, thanks largely to rising Brazilian demand as higher gasoline prices and low international sugar prices made ethanol more competitive at the pump.

© (c) Copyright Thomson Reuters 2018.

©2018 GPlusMedia Inc.

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If a US-Mexico trade war breaks out and Mexico puts tariffs on US corn, at least American producers will have an alternative outlet (however temporary - and that'd be great for Mexican agriculture but terrible for Mexican consumers). There is a limit to the amount of uncertainty Trump sows that industry can digest without consequence.

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One key point is missing in this article, one that should environmentalists change their perception on “clear” Brazilian ethanol: while its car emission is much cleaner than gasoline, Brazilian sugarcane producers burn the remains of the harvest in a fire so huge that it zeroes any environmental gain output. This fire is so toxic, it is done hidden in the middle of the night and causes cities nearby to suffer an ash rain that pollutes everything, and populations near the ethanol plants use millions of gallons of water to clean up the mess. Of course, this is all omitted from Brazilian gov’t selling “clean” ethanol abroad. So, in the end, US ethanol may be cleaner that it’s Brazilian version.

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Brazilian sugarcane producers burn the remains of the harvest in a fire so huge that it zeroes any environmental gain output.

it could be turned into biomass and used to generate electricity

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Hmmm... Japan was already struggling and failing to meet greenhouse gas CO2 emissions targets after Fukushima and the shut-down of her NPPs. Bowing to Trump makes no sense at all globally, but perhaps Japan can blend Brazilian with US ethanol for a slightly dirtier result here, and find a diplomatic mix to satisfy all of the people some of the time.

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こちらは家庭用エタノールにも影響がありますか?偶然今日はうちのビンは古いと見つけて、新たしいのを買ったばかりです。(Does this affect also merely household-use ethanol? By chance, I happened to notice that our bottle was old and to buy a new one today.)

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