OUTLOOK ’11: Asian biodiesel faces a lukewarm new year

27 December 2010 07:12  [Source: ICIS news]

By Serena Seng

SINGAPORE (ICIS)--Demand for Asian palm methyl ester (PME), a palm oil derivative used in biodiesel blending, is expected to remain tepid in 2011 as the European Renewable Energy Directive (RED) takes effect from 1 January.

The RED requires all biofuels imported across the EU to pass a minimum 35% greenhouse gas (GHG) emission criteria.

However, as the derivative met only 19% of the GHG emission criteria, most market participants expect PME exports to the EU to decrease significantly and for the overall industry growth to remain stagnant.

Demand had already weakened significantly in the fourth quarter of 2010 amid the traditional seasonal lull. The ongoing winter in Europe rendered PME unattractive as a biofuel because of its high cold filter plug point (cfpp) compared with other vegetable oils like rapeseed methyl ester and soybean methyl ester. The cfpp is the temperature point that the fuel will start to congeal.

Moreover, the volatility in the feedstock crude palm oil (CPO) sector recently also weighed on buying sentiment as PME prices were at an all-time high this quarter.

In addition, since 1 January 2010, the trade arbitrage window to the US had been closed following the expiration of the $1 (€0.76) per gallon biodiesel tax blending credit. The reluctance by both sellers and buyers to shoulder the cost of blending palm oil with diesel also fuelled the closure of the trade arbitrage window.   

While the US Congress had on 17 December approved the renewal of the biodiesel tax blending credit as part of a proposed tax bill to extend the Bush-era tax cuts, this had yet to be approved by President Obama. Most market participants believed that the credit renewal would open up trade opportunities to the US and demand for PME would return to healthy levels.

On the other hand, should President Obama reject the renewal once again, growth in the PME industry would decline.

Meanwhile, a consolidation is also expected in 2011 as smaller players with lesser financial clout could take on the volatility in the PME market, according to industry sources.

Production capacities were also expected to reduce in 2011 with a few major producers still in action. Sime Darby, Musim Mas and Wilmar are still running their biodiesel plants, although not at full capacity. These producers declined to reveal their operating rates, citing confidentiality as the main reason. However, a PME trader estimated that these plants were running at approximately 5-7% of overall capacity.

($1 = €0.76)

For more on palm methyl ester visit ICIS chemical intelligence
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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Serena Seng

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