FocusSoft soy trumps strong dollar in biodiesel

08 August 2008 22:27  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--Falling commodity prices should help US soy methyl ester (SME) biodiesel producers cope with a strengthening dollar that otherwise could keep the European market at arm's length, sources said on Friday.

Fair crop weather and worries that a stronger dollar could slow export business pushed down prices for SME feedstock soybean oil all week on the Chicago Board of Trade (CBOT).

September soybean oil contracts settled near 50 cents/lb ($1,102/tonne or €716/tonne) on Friday, about 20 cents/lb below record-highs of 70 cents/lb in March.

Clouding the picture is that crude oil prices also fell, meaning biodiesel suppliers cannot improve margins as much as they would like to compete with petro-diesel. NYMEX light sweet crude contracts for September were trading near $116/bbl on Friday, down $30/bbl, or 20%, from July’s record-high of $147.97/bbl.

"There’s a lot of crying and whining, but even if prices come down a little bit, they might see less of a margin but they’re not going to go under,” one industry analyst said.

Lower retail prices could help the renewable fuel gain more traction in the domestic market, analysts said. It could also help US SME suppliers gain back some ground lost to Argentinean biodiesel producers, who have recently increased their share of the lucrative European market.

Some on Wall Street have already weighed in, as investment bank Oppenheimer & Co on Tuesday gave an “outperform” rating to stocks for GreenHunter Energy, the largest US biodiesel refinery, on the strength of its biodiesel business.

As far as exports to Europe, which accounts for up to 70% of US SME sales, renewable fuel mandates will assure demand there stays high despite the dollar gaining against a Euro that is expected to weaken throughout the third quarter.

The Euro fell by 2% to reach $1.50 in New York on Friday, down from $1.53 the day before. It briefly reached $1.5005, the lowest level since 27 February.

“I don’t think (a strong dollar) will have drastic impact on biodiesel sales (in Europe). You’ll see some backing away from purchases, but they’re still going to need biodiesel,” one US producer said.

A Europe-based trader agreed, saying the drop in soybean oil prices could drive US B100 SME prices down enough to negate any rising-dollar effect.

“We are seeing, along with the stronger dollar, all these prices are coming off. As long as veg oil prices come down, US suppliers should be okay,” the trader said.

($1 = €0.65)

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By: Ben Lefebvre
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