Rape oil gains from biodiesel demand

11 April 2005 00:01  [Source: ICB Americas]

The explosion of biodiesel consumption in Europe is driving rapeseed oil production to new heights and reshaping the global rapeseed market.

Oilseed crushers are already preparing for the onslaught of rape oil consumption from biodiesel following the European Union commission’s goal to use a minimum of 2 percent of biofuels for transport by the end of 2005, gearing up to 5.75 percent by the end of 2010. Cargill Inc. and Archer Daniels Midland Company (ADM) both recently announced the expansion of their rapeseed crush capacity in Germany, the EU’s largest biodiesel producer.

ADM plans to convert some of the soybean capacity at its crushing plant in Oelmuhle, Hamburg, to rapeseed. Last year, ADM announced plans to double the capacity of its biodiesel plant at Oelmuhle, which is expected to be operational this year. Industry sources peg the plant’s current capacity at 120,000 tons per year.

Cargill intends to increase its oilseed crush capacity in Salzgitter, Mainz and Riesa by 50 percent to a total of 1.5 million tons. The expansions, worth several million euros in each location, are expected to be complete by 2006. The expansions are also driven by increasing demand from the biodiesel and foodstuffs sectors.

The US Department of Agriculture’s Foreign Agricultural Service (FAS) expects an increase in rapeseed production in Germany and France for the incoming 2005–06 season, driven mainly by demand for biofuels. FAS projects that Germany will consume 1.65 million tons of rapeseed by 2005 and 4.87 million tons by 2010 to meet the EU’s biofuels goal.

“While German rapeseed area suffices to meet the replacement goals for 2005 through 2007, it would only suffice to meet the 5.75 percent replacement goal if almost all rapeseed harvested were used domestically for biodiesel production, which is an unlikely scenario,” the FAS notes.

“Germany will either have to increase its imports of rapeseed, rapeseed oil or biodiesel and [or] reduce its exports of rapeseed or rapeseed oil to meet the goals. Opportunities for increased US oilseed exports to Germany are also a good possibility,” adds the FAS, “if German trading partners will replace the rapeseed that is then used for biodiesel.”

Rapeseed currently accounts for about 80 percent of the total biodiesel feedstock requirements in the EU. Around 20 percent of the total rapeseed grown in the EU is currently being used for biodiesel production.

As of March, FAS estimated global rapeseed production for the 2004–2005 crop year at 43.8 million tons, up 11 percent from 38.3 million tons in the previous season. Production in the EU-25 for 2004–2005 was estimated at 14.6 million tons, an increase of 32 percent. Forecasted rapeseed crush in the region was also up by 20 percent to 12.7 million tons.

“Following a drought in 2003, rapeseed production in the EU rose last year, spurred on by increasing interest in biodiesel production,” says one analyst. “The dramatic rise in rapeseed production is expected to lead a 17 percent increase in consumption compared to the previous 4-year average.”

Rape oil consumption in EU-25 rose 15 percent to 4.9 million tons in 2004–2005, estimates FAS. Global rape oil consumption was estimated at 15.2 million tons, 7 percent higher from the previous crop year. Current global record supply, however, still outpaces the increased consumption for rapeseed.

“Global demand for rapeseed is still insufficient to absorb record supplies in 2004–2005,” reports Oil World, an independent Hamburg, Germany-based company that provides forecasting and information services on oilseed commodities. “Large carry-over stocks are in prospect for EU-25 and Canada despite strong demand growth. Rapeseed demand from importing countries has also been reserved so far due to the current attractive price of palm and soybean oils.”

Oil World expects a seasonal slowdown in world exports of rapeseed to between 2.5 million and 2.6 million tons from January to June 2005. In July to December 2004—the first half of the rapeseed crop season—Oil World estimates global rapeseed exports at a four-year high of 2.85 million tons. “Rapeseed imports and crush will only become attractive if rape oil prices can compete successfully with palm oil and soybean oil,” the company notes.

Large rapeseed oil supply and competitive global vegetable oil prices have already scaled back current rape oil prices from its highs last year. Average rape oil price in February went down to $644 per ton, Dutch, f.o.b., from $681 per ton in January. Rape oil prices peaked last year in May to an average $741 per ton.

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