Dongfang securities issued the basic chemical industry research report in May 12th, and the report is summarized as follows:

　　Report origin

　　Compared with foreign countries, the market space of fuel ethanol in China is huge, and now it is mainly monopolized by biomass ethanol. And coal ethanol is expected to become the next coal chemical industry, following the development of coal, oil, coal, gas, coal, olefins and coal to produce ethylene glycol, and will directly compete with biomass ethanol by significant cost advantages.

　　Core view

　　China's fuel ethanol market space is huge, in the long run, has nearly 9 million 400 thousand tons of demand gap. Fuel ethanol can make gasoline burn more fully, while antiknock good, widely promoted around the world. In 2016, China's fuel ethanol production was only 2 million 600 thousand tons, compared with 42 million 660 thousand tons in the United States and 17 million 440 thousand tons in Brazil, it has a huge space for development. The medium term, the Energy Bureau of the "13th Five-Year" plan in 2020 China's fuel ethanol production of 4 million tons, compared with the current increase of 54%; while the long term added to gasoline ratio estimates of 10%, compared to the current nearly 9 million 400 thousand tons of ethanol demand gap. In addition, the increase in ethanol import tariffs, ethanol gasoline pilot will promote the domestic demand for fuel ethanol to form a positive.
Coal ethanol fuel cost advantage obvious, than biomass ethanol cost leading 300 yuan / ton to 800 yuan / ton.

　　Fuel ethanol in China coal and biomass ethanol ethanol two process routes, on the basis of the complete cost estimates of biomass ethanol costs between 4700-5600 yuan (G1 4709 yuan / ton, G1.5 5275 yuan / ton, G2 5588 yuan / ton); and coal based ethanol costs generally between 4000-4200 yuan (direct hydrogenation IFP synthetic gas 4071 yuan / ton, acetic acid directly hydrogenation of 4084 yuan / ton, Xinghua extended acetate hydrogenation of 4201 yuan / ton, the esterification of acetic acid hydrogenation technology in the solution of 4104 yuan / ton), even considering the grain ethanol subsidies and consumption tax breaks and other factors, coal based ethanol still has significant the cost advantage, cost at least 300 yuan / ton, up to about 800 yuan / ton.

　　Biomass ethanol subsidies decline, coal ethanol is expected to emerge with cost advantages. May face the risk of future biomass ethanol: (1) financial subsidies continue to decline, no subsidies for grain ethanol subsidies from 2005 1883 yuan / ton down to 2016, profit may be damaged; (2) agricultural supply side reforms to drive corn inventory, if corn prices bottoming out will increase the cost of corn ethanol (3; cassava ethanol) mainly rely on imports, tariffs by foreign influence, and cellulosic ethanol enzyme technology has yet to break through. In contrast, coal ethanol, even without subsidies, still has a competitive edge. In addition, the future of bioethanol and coal ethanol production capacity of about 3:1, we judge the competition between coal ethanol enterprises will not be too intense, and is expected to rely on cost advantages to replace large-scale biological ethanol.

　　Investment proposals and investment targets

　　Compared with the United States, Brazil and other countries, fuel ethanol in China still has a huge market space, the current domestic fuel ethanol has two main routes, the first is the biomass fuel ethanol industry, the future is expected to continue to enjoy the growth dividend, the proposals concern COFCO biochemical (000930, not rated), second of the coal chemical industry of coal at present, compared to ethanol, biomass ethanol has certain cost advantages, with the industrialization of science and technology has emerged, solution recommendations focus on coal based ethanol company representative (836455. Unrated) and Yanchang Petroleum Group commissioned the construction and management of 100 thousand tons of coal to ethanol project in Xinghua group, Shaanxi Yanchang Petroleum Group is Xinghua shares (2109 not rated) and the extension of the building (600248, Unrated) is the largest shareholder of the group is Xinghua, Xinghua shares (2109 Unrated) No. Two largest shareholder.

 

　　Risk warning

　　Crude oil prices continue to decline, leading to decline in ethanol prices.

　　The promotion of fuel ethanol policy in China is less than expected, affecting downstream demand.