Feedstock and US subsidies hinder Asia biodiesel

12 June 2007 09:40  [Source: ICIS news]

By Anu Agarwal

 

SINGAPORE (ICIS news)--High feedstock costs and competition from the US have resulted in low operating rates in Asia’s biodiesel industry, participants at the Asian Biofuels conference in Singapore said on Tuesday.

 

Prices of the feedstock palm oil have surged more than 50% since mid-2006 while biodiesel prices have gone up no more than 10% in the same time period, said an Asian biodiesel producer.

 

Even if the company had secured forward contracts of favourably-priced palm oil, it would make sense to just sell it in the higher-priced market today than make biodiesel and lose money, he said on condition of anonymity.

 

Another big challenge facing the industry was competition from subsidised biodiesel from the US.

 

There is a $1/gal (close to $300/tonne) subsidy on B99 – biodiesel blended with a small percentage of petroleum diesel.

 

In addition to making the US product cheaper, Asian and European biodiesel is also being shipping to the US where it is blended to qualify for the subsidy. It is then shipped back to Europe, the largest global market for biodiesel, and resold at a lower price.

 

This has complicated the entire business and created uncertainty among Asian biodiesel producers. According to industry estimates, Asian biodiesel industry was now running at very low rates, of 40-50 percent.

 

Producers who have already been in operation since the last couple of years may be able to sustain these difficult times but the plants which are ready for commissioning in the coming months will face the toughest challenges, some said.

 

Crude palm oil (CPO) third month futures on Bursa Malaysia had touched a decade’s high on 10 June and closed ringgit (M$) 2,484/tonne while spot prices had closed at M$2,700/tonne ($778/tonne), more than the FOB (free on board) SE (southeast) Asia price of biodiesel.

 

Although CPO futures corrected in the last two days, third month futures were still at M$2,381/tonne on Tuesday afternoon.

 

CPO prices need to come down much more significantly if Asian biodiesel industry has to start producing at high rates again, said another Malaysian biodiesel producer.

 

($1 = M$3.45)

 

By: Anu Agarwal
+65 6780 4359

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