Here comes BioChina: Amyris, others bypass the 4 Myths of Business in the Middle Kingdom

April 18, 2017 |

From California arrives the very interesting news that Amyris has entered into an agreement with Blue California whereby its affiliates will provide access to its fermentation manufacturing in China and provide the necessary capital to produce No Compromise ingredients for Amyris.  Turns out that China sales have been doubling.

Blue California might seem an unlikely brand identity for what is China-facing news — after all, isn’t the East red? Meanwhile, Blue California is based in Southern California although a global leader in food, flavor and fragrance ingredients and nutraceuticals.

Amyris will provide the technology and our partner is providing the capital and capacity for manufacturing that meets Amyris’s demand and Amyris is responsible for delivering the products to its customers and collaboration partners.

With the strong demand for farnesene-based Vitamin E oil with another Amyris partner in China, and the company’s opportunity to supply intermediates and ingredients for the large and fast growing Chinese food ingredients market, the revenue opportunity in China is significant. The company expects to generate $50 million or more in revenue over the next 12-18 months from its sales into China.

The news prompts us to address the 4 Myths of BioBusiness in the Middle Kingdom. Here they are.

  • the focus is on exports
  • investment is tough from a cultural, regulatory and IP safety basis,
  • it’s all about money, reducing fossil fuel emissions — just look at Beijing’s pollution
  • a chronic worry about food supplies prohibits the diversion of any food feedstocks into renewable fuels

Turns out, that’s old thinking, and there’s a new China.

Restating the goals

First of all, with the Paris Climate Change Agreement, the country has pivoted to leadership on reducing emissions.

Specific to renewable fuels, as we reported in December, China is looking to double ethanol production to 4 million metric tons by 2020 as it aims to work through its untenable grain stocks. The country had aimed for 4 million tons of ethanol production by 2015 but its tight hold on grain kept that from happening. Second-generation from crop waste associated with grain production, like corn stover, is seen as key for meeting the 2020 targets despite acknowledgment that the technology is not ready for prime time. Feedstocks such as cassava and other non-grain feedstocks will be prioritized as well as grain not fit for human consumption.

China seeks to double ethanol production by 2020

The excess corn problem

Part of the problem. China’s policy has been to support farmers by buying (at a floor price) and storing grain in an effort to stabilize prices for farmers. Now, China has a glut of aging corn grain that’s inedible. So, there’s been an effort on to boost consumption of its spoiled corn stocks for use in bioplastics and ethanol among other industrial uses.

The bad news, as we reported in March, the demand for these cheap inventories have not picked up nor have the industries grown significantly as a result of feedstock availability. Now China will be pressured further by farmers who are again suffering from low corn prices despite $5.7 billion in subsidies last year. One of the main corn-growing regions is calling for more ethanol blending and to deregulate ethanol production so private companies can also produce fuel rather than just public companies as is currently the case.

China’s push to corn-based bioeconomy slow despite surplus feedstock

One option? As was said in The Graduate: “Plastics”. We reported in January that the government will push for t in bioplastics production in an effort to eat its way through its giant corn glut, in addition to boosting ethanol production from corn through 2020. The focus on PLA is a way to add value to the more than 200 million metric tons of aging corn

The ethanol policy: domestic focus, please

Owing in part to the glut, China’s ethanol imports fell 98% between December and January to just 2,415 cubic meters, after China slapped a 30% import tariff which has US producers howling.

The tariff had been 5% since 2010. Platts reported seven cargos totaling between 260,000 and 440,000 cubic meters of ethanol scheduled for delivery during the first quarter were cancelled due to the tariff increase. Vietnam supplied 2,381 cu m of the imports, all of which were denatured.

China’s January ethanol imports fall 98% on month while seven Q1 cargoes canceled

As we reported in February, the USDA’s Beijing bureau projected a two-thirds fall in ethanol imports from the US, to 300 million liters in 2017, down from 853 million liters in 2016. .China’s ethanol distilleries are expected to produce nearly 13% more ethanol this year at around 3.55 billion liters. New factories seen coming online by 2020 will boost production capacity to 6.33 billion liters.

USDA sees Chinese ethanol imports falling to 300 million liters in 2017

A closed market for grains, too

The market has been in shut-down mode on dried distillers grains. As we reported in February,  the U.S. Grains Council , Renewable Fuels Association and Growth Energy sought help from the US Administration  “in urgently addressing China’s recent implementation of protectionist trade barriers that are shutting out U.S. exports of ethanol and distillers dried grains (DDGS).” Specifically, the three groups are asking the incoming U.S. Trade Representative to put China’s recent actions near the top of the administration’s China trade agenda.

In September 2016, after a nine-month investigation, China imposed a preliminary anti-dumping duty of 33.8 percent against U.S. DDGS and a countervailing duty of 10 – 10.7 percent. In a final ruling last month, China increased its DDGS anti-dumping duty to 42.2 – 53.7 percent and its DDGS countervailing duty to 11.2 – 12 percent. Additionally, the tariffs on U.S. ethanol have increased from 5 percent to 30 – 40 percent.

China had grown to be a top export market for U.S. DDGS. In 2015, the country imported 6.5 million metric tons of the ethanol co-product, worth $1.6 billion and accounting for 51 percent of total U.S. DDGS exports. By the end of 2016, China had become the U.S. ethanol industry’s third-largest export market, receiving nearly 20 percent of total exports. Nearly 200 million gallons of ethanol worth more than $300 million were shipped to China last year.

USGC, RFA, Growth Energy urge action on China ethanol, DDGS trade tariffs on  

What about biodiesel?

The story is mostly about ethanol — but there’s also a significant move on to tap the country’s waste stream of used cooking oil. For one, making biodiesel.

We reported last November that Bahrain-based ASB Biodiesel was looking to set up a UCO biodiesel facility in the Pearl River Delta on the Chinese mainland following its successful 2014 launch of a 100,000 ton per year facility in Hong Kong. The current facility collects UCO from Hong Kong, Singapore and Guangdong province, and expects to operate at a profitable 80% production capacity in 2017, sparking its search for expansion plans. Policy means that only a small amount of the biodiesel produced in Hong Kong is consumed in Hong Kong despite producing enough to supply a B5 for the region, so instead it is mostly sent to China and Europe.

Hong Kong UCO biodiesel producer looks to expand to the mainland

The aviation opportunity

When it comes to used cooking oil, the most interesting opportunity is in aviation.

We reported earlier this month that Sinopec’s Zhenhai Refining and Chemical will begin construction next year of a 30,000 metric ton aviation biofuel production facility using used cooking oil as feedstock. The facility requires 100,000 tons of UCO for the commercial-scale facility. The fuel is intended for airlines flying to international destinations with high carbon taxes, such as Europe that is contemplating the integration of the aviation industry into its cap and trade system. In anticipation of the European policy shift, Sinopec started work on the technology in 2011.

China to start building UCO aviation biofuel facility next year

Boeing and COMAC expand research collaboration including aviation biofuel

Boeing has been hard at work in the Chinese market, and especially with a focus on cooking oil. We reported last November that the aerospace giant and Commercial Aircraft Corp. of China (COMAC) signed a new agreement to expand their joint research collaboration in support of the long-term sustainable growth of commercial aviation.

The two companies, which signed an initial collaboration agreement in March 2012, have been researching ways to improve aviation’s fuel efficiency and greenhouse-gas emissions reduction, including sustainable aviation biofuel and air traffic management efficiency.

The ChemChina acquisition of Syngenta

No China review would be complete without a note on Chemchina’s proposed acquisition of Syngenta, which is heading towards global OKs right now. We reported on the $43 billion bid for Syngenta in February 2016. ChemChina, also known as China National Chemical Company, acquired Canada’s Nexen energy concern in a $17 billion transaction recently, and last month acquired KraussMaffei for $1.01 billion. The company competes in New Chemical Materials and Specialty Chemical Products, Basic Chemicals, Oil Processing & Refining Products, Agrochemicals, Rubber Products and Chemical Equipment.

Here are three slides that detail where the opportunities are: primarily, giving Syngenta an entree into the massive Chinese market and ChemChina an entry in the huge agricultural market.

Succinic acid horizons

The activity ranges well beyond fuels — renewable chemicals have been in focus, especially the afore-mentioned PLA, but lately a big effort on expanding succinic acid production.

We reported in December that  BioAmber and CJ CheilJedang Corporation signed a LOI for a joint venture in China to produce up to 36,000 metric tons of bio-succinic acid per year. It’s not a greenfield. The CJCJ JV involves a retrofit of an existing fermentation plant in a market that BioAmber cannot readily penetrate today. The goal is to competitively produce bio-succinic acid in China and quickly penetrate the world’s largest succinic acid market. This can be achieved rapidly, cost effectively and with limited capital investment by retrofitting an existing CJCJ fermentation facility with BioAmber’s succinic acid technology. CJCJ would incur all capital costs required to retrofit their fermentation facility, including the capital needed during plant commissioning and startup, and production would begin in Q1 2018.

Amber Waves of Gain: BioAmber, CJ CheilJedang to launch Asian JV for bio-succinic 

But there’s more. In October we reported that Reverdia and Dezhou Xinhuarun Technology (Xinhuarun) agreed  to jointly develop and promote Biosuccinium-based microcellular polyurethane (PU) foams. These new microcellular foams will be used in soles for footwear and further applications. Based in China, Xinhuarun’s products are exported across Asia, America, Europe and the Middle East. Produced since 2012, Biosuccinium is sold globally. The Biosuccinium Technology is also offered under license to value chain partners and co-producers.

Ms. Liang Yanzhi, Chair of the Board at Xinhuarun said, “Xinhuarun will work exclusively with Reverdia, using Biosuccinium™ for its microcellular PU foams in shoe soles.  Going forward, we will expand our work with Reverdia towards development and commercialization of other sustainable polymers in our strategic markets.  These innovative materials address a potential market in excess of $500 million.”

Reverdia, Xinhuarun to develop microcellular foam shoe soles

The Sorghum expansion

All of this bioeconomy expansion requires novel feedstock, in addition to waste streams from spoiled grains and old cooking oil. And sorghum has been very much in the mix.

We reported in November that NexSteppe and Longping Hi-Tech partnered for distribution, marketing and sales of NexSteppe’s Palo Alto biomass sorghum hybrids in China and will continue to evaluate joint research activities aimed at the development of improved hybrids best suited for local climate and growing conditions in China.

A focal point of interest? Optimizing these hybrids for soil remediation and bioenergy production in service of enhanced environmental protection and sustainable agricultural development in China.

As NexSteppe CEO Anna Rath told The Digest, “The Chinese government has measured 19% of China’s arable land to be polluted, with the most common inorganic pollutants being the heavy metals cadmium, arsenic and nickel.  NexSteppe products offer a unique solution to this environmental and human health challenge.  As they develop, Palo Alto biomass sorghums, with their robust root systems and fast growth, extract heavy metals from the soil while also providing a cost-effective, low-moisture biomass feedstock for biopower. These optimized sorghum hybrids offer the opportunity to continue using contaminated land while the soil is remediated back to safe levels for healthy food and feed supply in China.”

The East is (Sorghum) Red: NexSteppe, Longping Hi-Tech partner for expansion in China

Attracting investment

The other feedstock in demand? Er, that would be “capital” and China has taken steps to make it easier to invest in the country. In December, we reported that the central government published draft guidelines for foreign investment to help “increase openness with the outside world,” with industries such as corn processing and fuel ethanol seen as target sectors for foreign investment. It includes cutting the list of prohibited sectors where foreign investment is allowed to 62 from 93. The US and Germany have both been attempting to negotiate more open investment relationships with the country but have hit roadblocks. The new policy is open for public comment.

China to open up to more international investment including for ethanol

Chinese technologies abroad

But it’s not all about domestic production and imports — there’s technology transfer to be considered, and there’s been activity there, too, for Chinese companies seeking to expand internationally. In March, we reported that China New Energy won a number of contracts with Supercare Group Limited of Ghana and CNBM General Machinery Co., Ltd in China to construct a cassava-to-ethanol plant in Ghana that will have a production capacity of 45 million liters of ethanol per annum. The ethanol will primarily be used by the food industry.

The scope of the contract is to design and supply the ethanol processing equipment for the project and to work with a local EPC contractor to install the equipment and commission the plant. The total value of the contracts to CNE are, in aggregate, approximately $12.5 million that will be paid in accordance with agreed milestones. The project is scheduled to commence in May 2017 and the project is forecast to be commissioned in Q1 2018.

The Bottom Line

China’s on a Long March – on every horizon, there’s activity towards building a bioeconomy. The near-term focus is on building domestic production from waste resources — in the longer term, think energy crops and new sources of feedstock. But the production targets are substantial, when it comes to fuels. And the activity is broad based from fuels to chemicals and biomaterials too. We continue to see that ethanol’s growth in the near-term is spelled I-N-D-I-A, but in the longer-term the combination of carbon and industrial ambition will make the China market compelling and something that technology developers should keep very close track of.

Not only the massive deals of the ChemChina-Syngenta type — but organic acids like PLA and succinic, where far smaller ventures are finding great opportunity in the technology and crop services sectors.

In the mix, think butanol as well as the fuels and chemicals highlighted above. And we wonder if, as China’s diet shifts, there might not be massive opportunity for the vegan technology companies — Impossible Foods, Beyond Meat, Perfect Day and so forth.

It’s a Long March, however — not every one survives, and building the bioeconomy will not be one jolly march from the Old to the New. But no company should be without a China strategy for the long-term, and beginning to establish contacts with an eye towards substantial opportunities ahead.

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