Surprise fuel flows sparked by US-China trade war

Bloomberg

A Southeast Asian nation that was a bit player in the biofuel market is suddenly buying and selling unprecedented supplies. The US-China trade war may have something to do with it.
Malaysia has emerged to displace the US as the biggest supplier of ethanol to China in just two months. It’s also the first time the Southeast Asian country is selling such significant volumes to the world’s top consumer. At the same time, it’s buying a record amount of the fuel from America.
The hook? The shift occurred after President Xi Jinping imposed tariffs on US ethanol imports in retaliation to American counterpart Donald Trump’s duties on Chinese goods. While the two countries apply tit-for-tat levies, shipments from Malaysia to China are tax free.
The dispute between the world’s two largest economies has roiled markets from consumer goods to soybeans, but rarely has a completely new player emerged to fill in a supply gap.
The sudden spike in the flows in and out of Malaysia has taken traders by surprise, according to Heather Zhang, a Singapore-based analyst who follows the global biofuel industry at researcher PRIMA.
“It’s an interesting opportunity,” Zhang said. “It shows some merchants are enthusiastic in their effort to generate profitability and adapt to change in the international trading environment during this unusual trade war event.”

QUESTIONABLE DEMAND
There is no significant production or use of fuel ethanol in Malaysia, the US Department of Agriculture said in a report in October last year. It’s not produced commercially as the feedstock is expensive to transport, and it’s also excluded as a source of alternative fuel under the Southeast Asian nation’s biofuel
policy, according to the USDA.