Brussels, the 15 September 2020 – iEthanol, the European Industrial Ethanol Association, is a Brussels-based trade association representing producers of ethanol for industrial use in Europe. The Association acts as a focused voice for the European ethanol used in industrial and food uses sector, being produced by fermentation and /by hydration of ethylene (i.e. synthetic).

It is the only European association dedicated to non-fuel use of ethanol, a field of activities where there are many crucial issues in terms of classification, trade protection, human exposure or tax implications. iEthanol members are mostly composed of European SME’s, adding crucial added value to local and regional communities in terms of employment, investment and long term vision.

1. SYNOPSIS

The Dutch customs administration has received a new application to process ethanol (CN code 22071000) into screen wash (CN code 38200000). The application is for a period of three (3) years and for a quantity of 144.523,2 metric tons i.e. 48’174 MT per year.

A similar application has been presented by Dutch customs in 2018. The Commission, in line with the advice from the CEG, decided that the economic conditions were not met at that time. Since then, following new elements are claimed by the applicant to have arisen, justifying this new application:

  1. (1)  As a direct result of the COVID-19 crisis, the market conditions have changed significantly. The demand for hand sanitisers and disinfectants has resulted in an increased demand for ethanol and consequently prices of agricultural ethanol produced in the EU have increased considerably.
  2. (2)  During the meeting of the CEG-SPE on 8 November 2019, the economic conditions were considered to be met for an application for inward processing of synthetic ethanol of CN code 2207 10 00 90 into screen wash of CN code 3820 00 00 90. Synthetic and agricultural ethanol are interchangeable and applicant is of the opinion that applications for IP authorisations for agricultural ethanol should be treated equally to those where synthetic ethanol is used.

iEthanol is in this position paper answering to these claims with a different point of view on the same elements, and very substantiated elements of answer.

2. ANSWERS TO APPLICANT CLAIMS

2.1. COVID RELATED MARKET CONDITIONS

The EU market conditions have indeed changed with COVID 19, but not in the way the applicant is implying. There is indeed a new demand of high grade ethanol for Biocide related uses such as hand and surface disinfectants, which is not the quality needed nor used for screenwash.

At the same time several industrial ethanol demand segments have suffered from lower demand, such as uses linked to car and aircraft industries – inks and paints industry amongst others. This drop in demand is in the same market segment as low grade ethanol and/or fuel ethanol needed for screenwash. There are in fact more than enough volumes of low quality industrial ethanol available in Europe, even more so with COVID 19, for the applicant target market. (see point 2.2. below)

The net effects of the COVID 19 on total EU industrial demand show that total market remains the same, but increased demand in high grade ethanol and decrease of demand in lower grades ethanol are not comparable elements.

2.2.AVAILABILITY OF LOW QUALITY ETHANOL FOR SCREENWASH IN EUROPE

Europe has a production capacity exceeding 8.5 million metric tons of ethanol (FO Licht, 2020), and EU biofuel ethanol consumption (Epure 2019) was set at 4,6 million metric tons. Knowing that the DG Agri own figures (see following link DG Agri report) estimate a stable demand for industrial ethanol (Food and Industrial) at around an average 1.7 million MT, this leaves a large capacity of 2,2 million metric tons of production capacity available in Europe for further processing into low grades ethanol, as no special rectification plant is needed for screenwash qualities.

2.3.THE APPLICANT IS AIMING AT 34% OF THE SCREENWASH MARKET

The segment which the applicant is aiming at, screenwash segment, represents a total market of over 140’000 MT per year (FO Licht, 2020), and is served today almost entirely by EU producers. As showed in point 2.1. above, this market segment can be served with low grade industrial ethanol or part of the fuel ethanol production.

The application for imports of 48’174 MT per year is therefore representing over 34% of the Screenwash market, a staggering figure for an industry already impacted by a “Nordics exemption” allowing imports of Russian synthetic ethanol. Screenwash is the market where today EU producers can sell the lower qualities ethanol not sold in large industrial sectors (see 2.1. above) and further eroding EU Producers market shares with further exemptions would harm many of the SME’s active in this market.

2.4.SYNTHETIC ETHANOL VS FERMENTATION ETHANOL INTERCHANGEABILITY

During the meeting of the CEG-SPE on 8 November 2019, the economic conditions were considered to be met for an application for inward processing of synthetic ethanol of CN code

2207 10 00 90 into screen wash of CN code 3820 00 00 90. Synthetic and agricultural ethanol are interchangeable and applicant is of the opinion that applications for IP authorisations for agricultural ethanol should be treated equally to those where synthetic ethanol is used.

The 2019 application in question was made for imports in the Nordics, market where there is a logistical distance to EU main markets, and for Russian synthetic ethanol. Contrary to iEthanol strong opposition, it was decided that Nordics, being geographically far from EU’s main center of ethanol production, and the product not being from agricultural origin, it would be granted a special status and the request was granted. Since then, imports of EU ethanol in the Nordics have been severely decreased.

The two cases and raw materials should not be considered as comparable as:

2.4.1.Size of synthetic ethanol versus fermentation ethanol production

Synthetic ethanol production worldwide does not exceed 2 million Metric Tons against over 100 million Metric Tons for fermentation ethanol (FO Licht, 2019).

2.4.2.Subject to subsidies

Fermentation ethanol, as an agricultural product, is very frequently caught as directly or indirectly subsidised, as EU anti Dumping Duties against US two years ago or Brazil reinstatement of import duties for US ethanol this month are showing. It is crucial for the EU to keep its existing duties protecting the EU market against agricultural products imports.

2.4.3.Uses

Use of synthetic ethanol is forbidden in spirits and human consumption, representing over 50% of the Industrial market in Europe, as well as in fuel ethanol. There are mainly two qualities of synthetic ethanol, linked to the production process, high grade and low grade. The Low grade synthetic has such strong smell that it can only be used in specific industrial applications such as screenwash and chemical intermediates (Swedish Inward Processing, 2018). The use of low quality Russian synthetic ethanol can therefore not be compared to the import of multiple possible grades of fermentation ethanol for later blending once arrived in the Netherlands into screenwash. Such imports of fermentation ethanoly, whose smell of corn or molasses is much more acceptable to human sensitivity, and whose import and trade is much more sensitive to possible swaps between imported qualities.

This new Dutch customs request is therefore entirely different from the Synthetic ethanol in the Nordics, as this one is aiming at the import of USA and Brazil productions, totalling jointly more than 70 million tons – compared to the 8 million Metric Tons of EU Capacity.

The economies of scale of such producers are immense and allow a constant undercutting of EU mostly SME ethanol producers. Therefore, there is no need for screen-wash importers such as the Applicant to benefit from an Inward Processing waiver of duties to be competitive on the EU market. Importing straight denatured ethanol is enough to beat the market!

2.5.FUEL ETHANOL TO SCREENWASH AND NEED FOR PROPER MONITORING

Both Fuel and industrial ethanol are available in Europe, with strong investments made in fuel ethanol production in the past 10 years. Quality wise, fuel ethanol is increasingly playing a role in the industrial ethanol market, as the recent supplies during COVID 19 crisis in the high grade disinfectant market have shown.

In normal times, fuel ethanol is not suitable for disinfection, but it certainly is for lower industrial applications and for screenwash. The main problem Europe has is the lack of monitoring of the respective qualities produced, imported and exported. In this regard, iEthanol sent a letter to the EU commission two weeks ago asking to consider revising the EU Customs Nomenclature to take inspiration on US customs Nomenclature which in the 8 figures of the CN code details fuel from industrial uses. Work is now starting in this direction with the EU Commission.

2.6.PRICES INCREASES DUE TO COVID 19

All over the world, prices have increased in certain segments due to COVID19 crisis, as sudden increased demand and border controls for road transport created supply disruption in all qualities of ethanol. Suddenly counting only on national production, some market segments and more specifically disinfectants had strong price increases between March and June 2020. But market is since then coming back to more normal levels, as it was to be expected. Hence comparing COVID 19 related price for disinfectants and the general EU market in fuel and low quality industrial ethanol is not the right approach.

2.7.MERCOSUR FTA

The EU has recently signed a Free Trade Agreement with the Mercosur, where 650’000 Metric Tons of ethanol are part of the duties reduction. That will, at least for the 200’000 Metric Tons “All Uses” of the quota, affect markets and allow the applicant even more sourcing from outside of Europe. More Inward Processing even before the arrival of these volumes would be another nail on the coffin of the challenging situation EU industrial ethanol producers, mostly SME’s, are already confronted with.

3. RECOMMENDATIONS

In light of all the above, iEthanol suggest to the 22nd CEG-SPE Committee to reject the Applicant request for Inwards processing of ethanol into screenwash. As in 2018, the economic conditions are absolutely not supporting the applicant request and EU producers are entirely able to supply the right quality at the right conditions at all time in the future.

A new Inward Processing for further imports would gravely affect the EU Industrial Ethanol producers, should they on top of all existing import possibilities and incoming Mercosur FTA loose more that 30 percent of the Screewash market.