Key take aways from the second session at the First Investing in Clean Fuels conference
Sam Coxe, executive vice president of Credit Suisse said
There is no sign of mergers and acquisition activity in the biofuels sector, and there is not great deal of interest from big oil in capacity in the biofuels sector. There are a lot of entrepreneurs with between 1 and 4 plants and there could be economies of scale.
The question at the moment is whether to buy or to build capacity.
Jose Xavier of Jeffries & Co says he doesn’t expect the large oil companies to start blending or alliances with biofuel producers until they can prove that they can make their products to consistent quality standards.
Shai Weiss, of Virgin Biofuels suggested that consolidation in the US ethanol market may start in 2007 and his group has capital allocated to take advantage of any repossessions or bankruptcies that may happen next year. It currently looks cheaper to buy capacity than to build. The bioehtanol business is a leveraged bet on the oil price, he said.
As to integration between oil and corn there is a major disconnection between input costs, such as the price of corn, and the price of oil. Ethnaol, though follows oil, to some extent. The price of corn is important t several speakers said because for every cent cheaper you can get it you can save around 18 centrs/gallon on ethanol produced.
In US first generation ethanol, the long term stable ebitda margin (that’s the ratio of a plants’ earnings after interest, taxes depreciation and amortisation to its sales) is likely to be around 25% to mid to high teens this is down considerably from margins of around 35-45% which early players had.
Clean Fuels Finance forum is being held in London from 29 to 30 January.