19 October 2007 16:20 [Source: ICIS news]
By Alex Martinos
LONDON (ICIS news)--The European biodiesel industry is feeling the pinch as high vegetable oil prices and what they claim as unfair competition from US imports squeeze margins, producers and traders said this week.
With the European Commission (EC) moving to reduce biofuel farming subsidies, market sources said that profits have been wiped out by high feedstock prices and competition from “splash and dash” imports which benefit from payments on both sides of the ?xml:namespace>
Biodiesel industry players point to the example of rapeseed methyl ester (RME).
After steep increases in recent weeks, RME is currently trading at $1,150-1,200/tonne (€805-840/tonne) FOB (free on board) NWE (northwest Europe) according to global chemical market intelligence service ICIS pricing.
However, in part due to rising demand from the biodiesel sector, European rapeseed oil prices were reported this week to have reached record levels of €840/tonne for December delivery.
Producers said they were facing substantial losses.
“There is no margin in producing,” said one Scandinavian manufacturer on Wednesday. RME production, involving the transesterification of rapeseed oil, costs around $150/tonne, according to a biodiesel trader.
RME prices would need to reach €1,300/tonne FOB NWE for producers to break even, the trader said, predicting that further increases to that level were inevitable.
“It will happen, but the main question is when.”
Another trader was less certain, saying that RME prices were already so high that they could not rise further, irrespective of vegetable oil costs.
However, the trader saw the possibility that if the record crude oil prices seen in the last week were maintained, then rising mineral diesel prices “might make it competitive for RME to trade above $1,200/tonne.”
“Most of the impact of rising vegetable oil prices is currently on SME [soy methyl ester],” the trader said.
Soybean oil prices in the
The difficulties now facing some
The European Biodiesel Board (EBB) this week announced the latest step in its efforts to close the so-called “splash and dash” loophole which has disrupted the margins of European producers.
It estimates that 700,000 tonnes of US B99 biodiesel blends have entered the European market so far in 2007, taking advantage of legislation which allows the product to benefit from both US federal and EU subsidies promoting biofuels.
The EBB said it “will initiate a comprehensive legal action against this unfair trade practice in the form of a joint anti-dumping and anti-subsidy complaint, possibly supported by a WTO complaint.”
Industry players were sceptical this week about the likely success of the EBB’s lobbying efforts. One trader said that the situation was likely to remain unchanged “for at least another year” as the current
Noting that any appeal to the WTO would take some time, one producer added that any such complaint might not be fully justified as there were subsidies for European biodiesel too.
The EC offered little by way of relief, announcing a reduction in the subsidies paid to European biofuel growers after more land was planted with the crops than expected.
It confirmed that the proportion of land for which farmers may claim the €45/hectare “energy crop premium” will be cut to 70%.
What impact this decision, which covers such crops as rapeseed, will have on the biodiesel sector is not yet clear, but producers are already voicing fears that the loss of subsidies may push vegetable oil prices even higher.
“Prices are going to go up even more,” said a Scandinavian manufacturer. “Crops are going to get more expensive.”
The loss of subsidies may tighten the squeeze on a sector already struggling between perceived unfair competition and high feedstock prices.
Reflecting a growing sense of gloom in the industry, the Scandinavian manufacturer concluded: “Something will have to change because people will go bankrupt.”
($1 = €0.70)
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