Peter Cremer sees biodiesel losses in Asia

By Ovais Subhani and Jonathan Nonis

SINGAPORE (Reuters) - German commodity trader Peter Cremer will start two Asian biodiesel plants in July, but poor margins mean the plants may be run at less than half capacity, a senior company official said.

The plants, in Singapore and Malaysia, might run at only 40 to 50 percent of their installed annual capacity of 100,000 tons each this year, said John Hall, global managing director of Peter Cremer's energy business and managing director of its Asian Oleochemical operations.

"In terms of commercial viability they (plants in Asia) shouldn't run at all," said Hall, speaking at the Reuters Global Biofuel Summit in Singapore.

At the same time as palm oil prices have risen far beyond expectations, crude prices have fallen, making biodiesel too expensive to be compensated by tax credits and other incentives, he said.

Asian interest in vegetable oil-based biodiesel started growing in 2005, when the cost of palm oil was cheaper than crude petroleum and Europe made plans to promote green fuels.

But now the situation has completely reversed.

Crude palm oil, the main raw material for biodiesel, costs $556 a ton, after gaining 40 percent in 2006. Crude petroleum is quoted around $373 a ton, down more than 32 percent from the record high of $550.90 in July last year.

Hall said if palm oil comes off by at least $100 a ton, even if crude prices hold steady at current levels palm oil-based biodiesel would become viable again.

"At current prices you are looking at a loss of about $100 a ton if you make biodiesel in Asia and export it to say the United States. So if crude remains at around $50, palm oil should come down to around $400 to $450 to make the venture viable."

To cut potential losses at its biodiesel business in Asia this year, the company would target Asian markets like Japan, South Korea and Australia for exports, Hall added.

LONG TERM VIEW

But Hall said the company was in the biodiesel business for longer-term gains, and losses in Asia would be mitigated by profits at plants in the U.S., South America and Europe, where the company uses rapeseed and soyabean as feedstock.

"We have a global matrix and global commitments so probably we would run the plants at like 40 to 50 percent," he said.

With the new plants in Asia, Hall said Peter Cremer's global biodiesel production capacity would reach 450,000 tons a year in 2007.

The company's major customers, mainly petroleum refiners, would be in the market to buy about 500,000 tons to 600,000 tons of biodiesel this year, he said.  Continued...