FocusFurther boosts needed for Europe bioethanol

24 January 2008 15:43  [Source: ICIS news]

By Charles Shaw

LONDON (ICIS news)--High feedstock costs will continue to restrict European bioethanol production despite further support for blending targets offered in the European Commission (EC) draft climate change bill, market sources said on Thursday.

The bill, which needs to pass through parliament, reinforced achieving a 10% minimum biofuel blending target by 2020, a process which member states are already working towards.

Industry figures said that while a gradual increase in blending mandates over time would continue to create demand for biofuels in Europe, domestic production would remain at the mercy of high raw material costs.

Soaring wheat prices have forced many producers to halt production over the past six-to-nine months.

“Three tonnes of wheat are needed to produce one tonne of ethanol,” said one trader.

“With wheat currently at €220-230/tonne [$324-338/tonne], that is a production cost approaching €700/tonne. European sellers cannot compete with imported product at the moment,” one trader explained.

Imported, mainly Brazilian, ethanol, which is produced from sugar cane, has dominated the European market since wheat prices spiked.

“It is forecast that wheat prices will fall only €20-30/tonne after the next harvest. This will not be enough to change anything,” the source concluded.

“Governments are responding to political pressure to go green,” said one major European seller.

“But they are not thinking about the ethanol industry per se when doing this,” it added.

“All they are doing is boosting demand. This is great news for countries that can produce cheap alcohol, but not for all the European companies that have invested millions in plants that are now just sitting there,” the seller concluded.

The Brazilian Sugar Cane Industry Association (UNICA) said in a statement on Wednesday that it was pleased the EC proposal “does not discriminate against imported biofuels”.

Industry analysts say Brazil will welcome increasing demand from Europe as it saw exports to the US decline markedly in 2007 due to the latter’s stimulation of its domestic ethanol industry.

The climate bill received a wave of criticism from organisations such as Friends of the Earth, Greenpeace and the UK’s Royal Society.

These groups opposed the promotion of what they say are unsustainable fuels which will push up food prices while failing to address carbon dioxide emissions.

($1 = €0.68)

By: Charles Shaw
+44 20 8652 3214

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