When elephants fight, the ants are the first to die. There have been two moves to consolidate in to consolidate in different parts of the supply chain on different sides of the biofuel world in the past two weeks. Firstly, Malaysia's palm oil growers are banding together to gain size, and in Brazil, a distributor is trying to get its suppliers to merge into a larger commercial entity for bioethanol.
Taking Malaysia first, according to ICIS news :
Synergy Drive, a special purpose vehicle set up by CIMB Investment Bank, will buy Sime Darby, Golden Hope Plantations and Kumpulan Guthrie to create the world's largest publicly traded oil palm company.The ringgit (M$) 31.4bn ($8.7bn) conglomerate, will produce 2m tonnes or 13% of Malaysia's annual CPO output.
Shibu Itty Kuttickal's report continues
The surging demand for biodiesel could lead to CPO prices reaching M$2000/tonne in the first quarter of 2007, vegetable oil expert James Fry, and managing director of London-based consultancy LMC International, said.
Anhar Suki, engineering services director at Golden Hope, said: "In such a situation, standalone biodiesel projects would be in a tricky position."
He added that biodiesel from plants which were not integrated to oil palm plantations could not compete with diesel based on the current crude oil and CPO prices.
(Disclosure: I work for ICIS)
In Brazil... According to Brazil Estates, a blog about real estate in Brazil, nine ethanol plant are considering merging to create a group:
Almost the size of leader Cosan - with annual sales of around reais 2.5 billion ($1.2bn)In a first phase, the merger would include:- Cia. Energetica Santa Elisa (Sertaozinho, SP) (Andre Biagi)- Cia Vale do Rosario (Morro Agudo, SP)- Jardest (Jardinopolis, SP)- MB (Morro Agudo)Those four process about 15 million tonnes of sugar cane per year, good for total sales of around reais 1.5 billion.
The second phase would encompass:- Mandu (Maracai, SP)- Pioneiros (Sud Menucci, SP)- Moema (Orindiuva, SP) (Maurilio Biagi Filho)- Paraiso (Brotas, SP) Those 4 would bring the total production to around 26 million tonnes, and sales of reais 2.5 billion.
The message is clear: consolidation in parts of the biodfuels market is already happening and that non-integrated players will find it harder to survive. This probably doesn't matter much if you're processing your biodiesel in a shed at the bottom of the garden and have got a good relationship with your local fast-food outlet. There is likely to be a place for small producers for some time to come, but the bigger semi-commercial and commercial outfits will need to be of a reasonable size to survive. And once you get to that size then, and I'm going to stick my neck out here, the game isn't about making your own fuel, its logistics. That's something big oil does pretty well.
Picture from http://www.flickr.com/photos/shplendid/