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Report: China to recover from biofuel slump of 2008
February 11, 2009 - by Emma Ritch, Cleantech Group

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Frost & Sullivan says current 'adjustment period' will give way to 9 percent growth this year and recovery by late 2010.
China's biofuel industry is experiencing declining prices and limited feedstock supply but is poised for 9 percent growth this year and recovery by late 2010, according to researchers at Frost & Sullivan.

China is the third-largest biofuel market, after the U.S. and Brazil. The country produced more than 360 kilotons of biodiesel and 1,620 kilotons of bioethanol in 2008.

The slowed economy has led to a sharp decline in biofuel demand, said researcher Frank Xie. The decline was caused by the slowed market for passenger vehicles and lower crude oil prices.

"The Chinese biofuel industry is entering an adjustment period in 2009 with declining prices," Xie said. "However, given China's increasing demand for energies, the biofuel market is expected to recover gradually from the current recession in late 2010 to early 2011."

The industry faces other challenges, such as the shortage of feedstock, Xie said. Bioethanol producers typically use wheat and corn as feedstocks but are switching to non-food celluloses and potatoes, which should help ease shortages, Xie said. In the biodiesel space, entrepreneurs have not found a stable feedstock, relying mostly on
waste cooking oil, he said.

Part of the recovery will be fueled by producers using newly available feedstocks in 2010 to 2012, such as sweet potato and sugar cane for bioethanol and jatropha for biodiesel.

In fact, biodiesel is expected to fare better than bioethanol, due to less government interference and better processing technologies, Xie said.

Industry consolidation is another factor that will help speed the recovery, Xie said. In 2007, the country's biggest bioethanol producer China National Cereals, Oils & Foodstuffs acquired the Heilongjiang alcohol factory from China Resource Vanguard Group, expanding its capacity from 100 to 150 kilotons a year.

Xie said government subsidies, tax exemptions or allowances could help the continued development of biofuels during this rough patch for the sector.

Xie noted that Gushan Environmental Energy, which produced 60 percent of the country's biodiesel in 2008, was profitable last year (see Gushan starts work on new biodiesel plants). The company was able to control its feedstock supply, improve processing and expand its market share.

Frost & Sullivan predicted earlier this year that the water market in China is liekly to experience growth rates of 12 percent to 15 percent (see China's stimulus package boosts water desal, recycling).

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