OUTLOOK '08: Asia biodiesel will watch feedstock

02 January 2008 02:45  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--High feedstock costs and the need for governmental and environmental support will be key concerns for the Asian biofuel markets in coming year, regional ethanol and biodiesel traders said on Wednesday.

Biodiesel production has become increasingly unviable amid surging feedstock crude palm oil (CPO) costs and is unlikely to change in the coming year, biodiesel producers based in Singapore and Malaysia said.

With costs rising faster than biodiesel prices in the key European market, regional producers are struggling to survive. Most biodiesel facilities in the region have either shut in the face of such hardship or have been operating at low rates during the second half.

CPO prices have risen 52% since March this year while palm biodiesel prices rose only 28%.

The only hope for these units would be if Asian governments chose to support biodiesel, especially countries like Indonesia and Malaysia where biodiesel plants are located, some biodiesel producers say.

The other biofuel, ethanol, has also been only partly successful in Asia, traders said.

India, Thailand, The Philippines and China to a limited extent have started ethanol blending.

However, food security concerns in China and other logistical and technical concerns have resulted in a not so cohesive strategy for ethanol usage across Asia.

Asian ethanol market has become supply driven as demand for the biofuel is not rising significantly, said Henri Bardon of the global ethanol trading firm Vertical.

Biodiesel is a premium product for diesel blending but ethanol is an economical substitute for oxygenates in gasoline and yet the urgency to use it has not been seen in Asia, he added.

Current fuel ethanol prices of around $650-700/tonne CFR (cost and freight) Asia are lower than oxygenates like MTBE which are hovering at $900/tonne FOB (free on board) SE Asia.

Thailand has been one place with a focus on biofuel use, traders said.

The country has provided tax incentives and support for using 10% ethanol blend called gasohol. A program to use 20% ethanol blend has been approved for 2008, said sources from PTT and Bangchak, the county’s refiners and blenders.

If the additional blending in Thailand is mandated in 2008, regional ethanol prices might firm, said regional traders.

The other big gasoline markets like Japan and Korea have yet to finalise biofuel policies. Steps taken by such countires will possible decide the fate of the Asian biofuel market in the coming year.

By: Anu Agarwal
+65 6780 4359

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