The headline for this post was going read “Another one bites the dust” but that isn’t quite correct. The Australian Biodiesel Group (ABG) are down but not out. In an announcement to the Australian Stock Exchange today ABG listed the following series of measures they are undertaking to limit financial loss:
- The sale of ABG’s Moree oil crushing mill for $2.64 million.
- Reducing overhead costs, including staff and office facilities, to a minimum consistent with remaining a publicly listed company.
- Reducing the number of staff at the company’s Narangba biodiesel production facility consistent with the low level of demand for biodiesel projected in the immediate future.
- Only producing biodiesel when doing so improves the company’s financial position.
- The continuation of sale of other non-core assets of the company.
According to ABG and Australian Renewable Fuels (previous post) current market conditions and Government policy have resulted in the cost of producing biodiesel exceeding the price it can be sold for. Both companies have now decided they can no longer continue production under current conditions.
ABG’s Narangba plant will be put on standby, retaining sufficient skilled operators employed to facilitate a rapid return to production, when demand and costs allow profitable manufacture.
The following list highlights the key factors hindering the ABG’s performance:
- Ineffective and unstable policy settings continue to undermine the biodiesel industry. In the view of the Board, the 350 million litre biofuel target policy mechanism has failed to establish market access via the crucial oil majors, as had been anticipated by the company. Without access to the customers of the majors, ABG has been unable to generate the volumes required for the company to be profitable. Significant changes to fuel excise arrangements on 1 July 2006 and ongoing uncertainty related to Government fuel standards has further hampered the viability of the biodiesel market.
- As with other Australian biodiesel producers, ABG has experienced significant rises in raw materials costs over the second half of 2007. The company’s Rights Issue Prospectus of 23 March 2007 detailed an assumption of a tallow price of $580 per tonne. However, tallow has recently traded at over $950 per tonne, with indicative tallow offers for November of $975 per tonne, making production costs unsustainable.
Sound familiar don’t they? Exactly the same issues that caused Australian Renewable Fuels to mothball their two plants. The future of tallow based biodiesel production in Australia definitely looks bleak.
Source: ASX (thanks for the tip Sreenivas)