High palm oil prices slow biodiesel production in Asia

Reuters are reporting that even with oil approaching $100 a barrel companies in Asia who have invested tens of millions of dollars in biodiesel plants are struggling to make money due to the high price of their palm oil feedstock.

Crude palm oil now costs just over $1,000 a tonne, while petroleum-based diesel fuel trades at about $780 a tonne in Singapore. When you factor in production costs that are approximately 30 percent higher than that of regular diesel it isn’t hard to see why quite a few biodiesel plants have stopped production.

Malaysia has licensing more than 90 companies to set up biodiesel projects with a capacity of nearly 10 million tonnes per day year. Today, just 7 plants running, most of them below capacity. The estimated 2008 output is likely to be less than 100,000 tonnes per day year.

Singapore, Australia-based Natural Fuel’s 600,000 tonne plant (previous post) is suspected to be running at 10 percent of the capacity. All this makes Neste Oil’s announcement in November (previous post) to build the world’s largest biodiesel plant in Singapore all the more surprising, particularly when Neste plans to use palm oil as feedstock.

Managing director of Mission Biofuels, now building a second plant in Malaysia, Nathan Mahalingam said:

We believe that you don’t build a commodity business according to the cycle, you go in for long-term strategy.

It is a ridiculous price situation to be in and times are going to be challenging.

Source: Reuters (thanks for the tip Sreenivas)

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