As of mid-2015,164 countries around the world have adopted at least one type of renewable energy target, up almost four-fold from 43 countries in 2005.
As gloomy as it may appear now with Gasoil below $600/mt, the biofuels story is far from dead as mandates are still increasing globally in Brazil, Argentina, Korea and perhaps Indonesia.
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Roman Zenon Dawidowicz | Biodiesel Supply and Price Trend in Global
1. Subtitle Goes Here
Biodiesel Supply and Price
Trend in Global and Asia
market
Roman Zenon Dawidowicz,
Asia Biodiesel, Ethanol &
Feedstock Broker
July 2015
2. Global 2015: The big picture
As of mid-2015,164 countries around the world have adopted at
least one type of renewable energy target, up almost four-fold
from 43 countries in 2005.
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3. Asia 2015: The big picture
As gloomy as it may appear now with Gasoil below $600/mt, the
biofuels story is far from dead as mandates are still increasing
globally in Brazil, Argentina, Korea and perhaps Indonesia.
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Country Mandate Translates to Consumption.2014 Production.Capacity/yr Note (eg: currrent state and what is expected to happen)
Korea B2 400k mt 800k mt/yr
Will increase 2.5% this Aug, 2.5% will last 3yrs. And then will increase 3.0%
Japan 0% 3.6k mt 6k mt/yr
Small market, only some local governments have their own policy for voluntarily using Bio.
Malaysia B7 600k mt/yr 0.59m mt 2.7m mt/yr
Plan is to increase to B10 in Sept.Malaysia's nameplate biodiesel capacity of its 21 members is 2.7m
mt/year, but current utilization is only 22% in 2014, according to a Malaysian Biodiesel Association member.
Indonesia B15 4.09mill mt/yr1.57mill mt/yr 3.48mill mt/yr
CIMB Research expect a 3.4mill kl consumption for 2015 after proposed biodiesel subsidy.
China 0% 0.97mill mt/yr 3.48mill mt/yr
Looks to move to 10% biofuels mandate by 2020, and currently has a 15% overall target past 2020
4. Asia 2015: The big picture
Indonesian Palm Oil Levy worsening PME trade to Europe and
USA (Expected levy 1 July)
USA likely to move to Arg SME (EPA Mandates)
PFAD double count PME likely to be the bulk of this years EU
imports.
Falling RINS Prices in USA, along with the Indo export tax create a
lower expectation for USA imports.
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6. CPO 2015: The big picture
Malaysian CPO production continues to trend higher while
exports surge.
The higher palm oil stocks are likely to dent optimism about CPO
price prospects.
Still awaiting the report from the MAA on B10 usage
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7. PME Biodiesel 2015: Expectations
Neutral assumptions on CPO price
High vegetable oil production
A weaker global economy and crude oil price
Slow progress of biodiesel policies in Indonesia and Malaysia.
Expect stocks to rise further, driven by the seasonally-higher CPO
output. (approx. 2mmt End June 15)
Malay B10 programme to consume about one million tonnes of
CPO a year, from 700,000 tonnes under the B7 programme.
Other Potential bullish factors
Concerns that the ongoing El Nino could disrupt palm oil supplies
Indonesia’s plan to raise their biodiesel usage by implementing a CPO levy on planters.
India CPO demand as drought affects soybean crop
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8. Other Asia Biodiesel 2015: Expectations
Korean Exports
Korea continues to export UCOME to USA and EU
Problem with Korean exports to EU market is securing ISCC feedstock at an attractive price.
China discretionary import market dead
Indonesian PME currently priced @ $760 CNF South China
South China local PME price is around RMB 4700/mt, so converting to CNF around $650/mt
South China local Diesel price is around RMB 5400/mt, so converting to CNF around $740/mt
Cycle Oil? apparently 3x30kmt of Cycle Oil arrived this month
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9. 2015: Europe - The big picture
Industry’s mortal threat quashed: EU Parliament
backs down on swingeing ILUC factors which
would have slowly strangled biodiesel
RED renegotiation caps crop-based biofuels at 7%
market share: FQD carbon targets require
demand growth through 2020
German GHG mandate adds to market
complexity. BUT producers can now monetise
carbon savings
Fortress EU remains: imports choked to a trickle
by CVDs and anti-dumping on US, Indonesia,
Argentina. BUT vegoil inputs largely remain
derivatives of CBOT direction
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10. 2015: Europe - The big picture
10
700
750
800
850
900
950
1000
1050
1100
1150
1200
RME Fob ARA $/mt
PME Fob ARA $/mt
SME Fob ARA $/mt
RME vs PME vs SME FOB ARA
EU Intercrop tightness has seen rapeseed oil stretch its price lead over palm and soy over the past month, a
trend which poor European 2015 crop fundamentals suggest will continue.
11. 2015: Europe - The big picture
EU rapeseed forecasts
suffer downgrades amid
widespread drought.
Tight spreads between
palm oil, rape oil and soy
bean oil have kept
EU biodiesel and other vegoil buyers focused on
domestic compressing price spreads between RME and
FAME zero to near flat.
RSO spreads to PO of over $200/t through the end of
this year may leave palm looking attractive as a
feedstock for EU biodiesel producers.
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12. Who consumes what and where?
EU Market around 11mn tonnes in 2015,
but estimates complicated by German
GHG experiment
Consumption profile is hugely diverse.
German 2.3mn t/yr market consumes 90%
crop based biofuels and 10% waste based
around geographically diverse network of
inland refineries
UK double counting has encouraged the
polar opposite structure, Spain likely to
follow
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0
20
40
60
80
100
120
Waste VVO HVO
UK
Germany
Germany vs UK market structure (DFT, UFOP)
0
0.5
1
1.5
2
2.5
Germany
France
Italy
UK
Spain
Poland
sweden
Austria
Belgium
Netherlands
Denmark
Portugal
Czech
Rep
Finland
Romania
Greece
Slovakia
Hungary
Ireland
Bulgaria
Lithuania
Slovenia
Luxembourg
Croatia
Latvia
Cyprus
Malta
Estonia
Million
tonnes
EU biodiesel demand (EurObservER)
13. Double count cuts vegoil demand
Bulk imports shriveled since 2013. BUT
growth of double count incentives has
cut VVO demand by twice the volume
consumed. Array of feedstocks
widening to include more palm waste
alongside Tallow, UCO
Annual double count consumption at
circa 1.5-2mn t implies VVO demand
reduction of 3-4mn t
Slack demand has left EU producers
suffering from overcapacity, poor
margins. Integrated producers are
idling plants
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0
20000
40000
60000
80000
100000
120000
140000
160000
180000
EU Imports ‘000t (Eurostat)
0
40
80
120
160
200
240
RME-RSO margin $/t (Bloomberg)
14. Germany blazes the GHG trail
Germany started counting carbon,
not tonnes, from 1 Jan 2015,
requiring 3.5% saving. The change has
dragged standard headline GHG
savings towards 60% compared to
RED 35% standard
Higher GHG savings = lower blend
volume. German diesel demand
masks drop in overall blend ratio
FQD requires 6% transport fuel
carbon saving reduction by 2020:
implies hefty demand growth from
environmental best in class biofuels,
particularly economic recovery lifts
diesel demand
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5
5.5
6
6.5
7
7.5
8
8.5
2,250,000
2,450,000
2,650,000
2,850,000
3,050,000
3,250,000
3,450,000
3,650,000
tonnes
Blend ratio %
German biodiesel vs diesel (BAFA)
100
120
140
160
180
200
220
240
1990 2000 2010 2020 2030
EU diesel demand mn toe (EC)
15. Biodiesel vs diesel
2014’s booming harvests briefly
sent biodiesel into discount vs
gasoil, triggering surge in
“discretionary” blending
worldwide
Despite overhang in world oilseed
output, Saudi refusal to cut
production in wake of shale boom
sent gasoil into a faster tailspin
shutting discretionary economic
window
Oilseed oversupply remains:
overseas mandates increasingly
crucial to consuming marginal
vegoil tonne and supporting
vegoil price
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0
20
40
60
80
100
120
2013/2014 2015/2015 2015/2016
Oilseeds
Vegoils
Global oilseed balances mn t (USDA)
-200
-150
-100
-50
0
50
100
150
200
250
300
Month 1 Bean oil vs gasoil $/t (Bloomberg)
16. Reading the markets
CBOT remains the world’s directional
bean oil benchmark. EU still lacks
convincing feedstock hedge as liquidity
remains thin in Euronext RSO futures.
BOGO spreads still widely used.
US advanced biofuel mandate implies up
to 27% rise in US biodiesel consumption
2014-2016. Closely watching RINs
provided accurate bellwether of post-
EPA vegetable oil spike
Indonesia working on 15% biodiesel
mandate to soak up palm oil
domestically
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600
700
800
900
1000
1100
1200
Soybean oil
RSO
RME
Bean oil vs biodiesel $/t (Bloomberg)
0.8
0.82
0.84
0.86
0.88
0.9
0.92
680
690
700
710
720
730
740
750
760
770
Bean oil $/t
D4 RIN¢/gal
¢/gal
$/t
EPA mandate published 29 May
RINs reflect US bio balance (Bloomberg)
17. US watch: 2015 RVO
EPA proposes ambitious increases over 2014 volumes
Change on 2014 % Standards RINS
Cellulosic Biofuel 106 mill gal +73 mill gal 0.059% 106 million
Biomass Based Diesel 1.70 bill gal +0.07 bill gal 1.41% 2.55 billion
Advanced Biofuel 2.90 bill gal +0.22 bill gal 1.61% 2.9 billion
Advanced Gap 1.094 bill gal +0.077 bill gal - 244 million
Total Renewable Fuel 16.3bill gal +0.37 bill gal 9.04% 16.3 billion
Ethanol 13.4 bill gal +0.15 bill gal 7.43% 13.4 billion
The percentage standards correspond to the four separate volume
requirements. The standards represent the ratio of renewable fuel
volume to non-renewable gasoline and diesel volume.
All volumes are ethanol-equivalent, except for biomass based diesel which is actual
18. US watch: 2016 RVO
Change on 2015 % Standards RINS
Cellulosic Biofuel 206 mill gal +100 mill gal 0.114% 206 million
Biomass Based Diesel 1.80 bill gal +0.10 bill gal 1.49% 2.7 billion
Advanced Biofuel 3.40 bill gal +0.50 bill gal 1.88% 3.4 billion
Advanced Gap 1.394 bill gal +0.30 bill gal - 494 million
Total Renewable Fuel 17.4 bill gal +0.90 bill gal 9.63% 17.4 billion
Ethanol 14.0 bill gal +0.60 bill gal 7.75% 14 billion
2016 sees further increases, particularly for cellulosic biofuels
which took a write down of 1.42 billion gallons in 2014
All volumes are ethanol-equivalent, except for biomass based diesel which is actual
19. The future
With EU Parliament decision to ditch harsh ILUC
on biodiesel, stage is set for EU industry to
monetise environmental best practice in pursuit
of 6% GHG saving subject to 7% first gen crop cap
EU market can grow sustainably: needs to adopt
best practice on feedstock, chain of custody and
technology to address post-mandatory world
from 2020
Despite the lack of arbitrage, price direction will
be determined globally. Risk management
requires an informed, accurate world view on
policy, S&Ds and price
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