FocusPalm oil surge threatens Asia biodiesel

26 September 2007 05:24  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Surging palm oil prices are on the verge of closing down the Asian biodiesel industry, regional producers said on Wednesday.

Unable to afford the expensive feedstock, a number of firms have delayed the start-up of their biodiesel plants while others are running at low rates.

Crude palm oil (CPO) third month futures on the Bursa Malaysia exchange were trading above ringgit (M$) 2,650/tonne ($770/tonne) FOB (free on board) on Wednesday.

CPO prices surged this week after a bullish report presented on Sunday by industry pundit, Dorab Mistry.

He predicted palm oil prices to stay at high levels of M$2,600-3,000/tonne in the wake of record high global wheat prices, which is expected to take acreage away from oilseeds.

Increased food demand and high soybean prices in the US are also key factors to lead palm prices up, Chris de Lavigne, vice president global consulting with Frost and Sullivan in Singapore, said.

Crude oil at above $80/bbl is another reason for the bullishness in the vegetable oil sector, said a regional biodiesel producer.

High crude prices will not benefit the biodiesel sector if CPO maintains such high levels, he added.

Palm oil prices are currently around 35% higher than in March this year.

At current CPO prices, palm biodiesel makers need a minimum price of $900/tonne FOB (free on board) SE (southeast) Asia, but with bids $100/tonne lower, it was nearly impossible to do business, Asian biodiesel makers said.

This, along with the $300/tonne subsidy which US biodiesel exporters enjoy, has practically brought the whole Asian biodiesel industry to a standstill, said Unnithan, Executive Director of Carotino Sdn Bhd.

The subsidy is available to US biodiesel exporters if they put a small amount of petroleum diesel in the biodiesel - a phenomenon called “splash and dash” in the industry – causing a loss of competitiveness in the Asian and European biodiesel production sector.

Despite stringent opposition from many in the biodiesel industry, this subsidy may remain in place in the near future, said Unnithan.

Not many plants are running in the region, including older and some of the newly constructed facilities of companies like Global Biodiesel, Golden Hope and Vance Bioenergy.

Nexsol – the joint venture of Peter Kremer and Kulim of Malaysia – which is building two plants with capacities of 100,000 tonnes/year in Singapore and Malaysia, has also delayed the startup of its plants.

A handful of plants like Wilmar are operating at low rates in Indonesia as an export tax on palm oil in Indonesia made biodiesel production feasible. High priced byproduct, crude glycerine can help somewhat with the economics, said industry sources.

Ironically, crude glycerine, which was produced in plenty in 2006 and early 2007 and had found few takers amid a glut of supply is now the only silver lining in the biodiesel production sector.

High CPO prices have also led to a global surge in glycerine prices.

Crude glycerine, a byproduct of biodiesel production can now fetch around $450/tonne FOB SE Asia, a change from days when biodiesel makers had to ship it at throwaway prices.

($1 = M$3.43)

By: Anu Agarwal
+65 6780 4359

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