A number of European biodiesel refiners are likely to go under, and the EU will be under pressure to erect barriers to imports in the coming year as low demand in Europe for the green fuel combines with stiff competition from abroad.
“Many biodiesel companies are already in a critical situation, and there is a risk that this will be transformed into companies closing in the next months,” said Raffaello Garofalo, secretary general of the European biodiesel industry association EBB.
“Many companies have already closed, especially in Germany and Spain.”
The EBB estimates European Union 2011 biodiesel production capacity is at 22.1 million tonnes but that the industry is reaching only 44 percent of that capacity.
“Although the EU has got a nominal biodiesel capacity of more than 22 million tonnes, many plants have been at least temporarily closed down or idled and are not really producing,” said Rabobank analyst Susan Hansen.
“This is for instance the case in Germany, Spain, or Italy but actually across the whole of the EU.”
A poor EU rapeseed crop has made palm oil and soyoil-based biodiesel more price attractive.
German oilseeds analysts Oil World forecasts EU biodiesel output will fall to 9.07 million tonnes in 2011 from 9.54 million last year largely because of competition from imports.
“EU imports of biodiesel have increased sharply so far this year and will probably reach a record 2.52 million tonnes in January/December 2011, up 21 percent from last year,” Oil World said.
“We expect 1.4 million tonnes of biodiesel to arrive from Argentina and at least 830,000 tonnes from Indonesia and Singapore,” Oil World says.
That compares with imports of 1.1 million tonnes from Argentina and 516,000 tonnes from Indonesia and Singapore last year.
European biodiesel producers came under extra pressure earlier this year as environmentalists questioned the EU policies for green fuels, after studies said the cultivation of rapeseed, palm or soybeans as a feedstock for biodiesel was worse for climate change than the use of regular diesel.
Biodiesel refiners themselves are often unwilling to talk about the depth of the problem.
“The industry is in a very bad way, and we could see more closures pretty soon, especially in south Europe,” said one German refiner, who declined to be named.
CRISIS CLOSE IN SPAIN AND ITALY?
A crisis could be approaching in Spain and Italy, where biodiesel capacity usage is falling to dramatically low levels.
“I cannot see how Spanish and Italian biodiesel producers will survive much longer at the terrible capacity usage rates we are currently seeing,” one oilseeds trader said.
“The signs are that biodiesel imports are causing an alarming fall in local output.”
Spain’s 2011 biodiesel output will drop 31 percent on the year to 550,000 tonnes, Oil World estimates. Spain’s biodiesel production capacity is 4.4 million tonnes.
Italy’s 2011 biodiesel output is likely to fall 40 percent on the year to 450,000 tonnes, Oil World forecasts. Italy’s annual capacity is 2.2 million tonnes.
More EU imports of palm-based biodiesel are expected, especially from Indonesia.
“Biodiesel demand for Europe at least keeps us in business and will keep palm oil prices very supportive next year despite expectations for strong production,” said an Indonesian trader who sells biodiesel to Germany.
But rising imports, especially from Indonesia, also threaten to create trade friction, with allegations of unfair prices.
“Palm oil and even biodiesel is sold in the internal market in Indonesia at a price which is higher than the price of exports to Europe,” said the EBB’s Garofalo. “There is clearly dumping. This also happens from time to time with Argentine imports.
“We are now talking to the EU Commission authorities to raise their attention to this issue.”
Rabobank’s Hansen said she would not be surprised if the EU moved to curb imports.
“Every time imports drastically increase, I believe the EU will find ways to – at least temporarily – put barriers in place by introducing tariffs on imported biodiesel for example,” she said.
The EBB is also calling on European governments to take more steps to reach the EU’s goal of 10 percent biofuel use in transport by 2020.
“This (low production) is a paradox when we have a desperate need to reduce greenhouse gases in transport to fight climate change,” Garofalo said.
Author: Michael Hogan and Ivana Sekularac
Additional reporting: Niluksi Koswanage
Editing: Jane Baird