Natural Fuel sees lower biofuel feedstock costs

By Fayen Wong

SYDNEY (Reuters) - Prices for raw materials needed to produce biofuels, which have climbed steadily in the past year, should fall by 2008 as new plantations come on stream, Australian biofuel producer Natural Fuel Ltd. (NFL.AX: Quote, Profile, Research, Stock Buzz) said.

"The increased plantations are coming on line so the volumes that aren't in the market today, will be by 2008," Richard Selwood, Managing Director and Chief Executive Officer at Natural Fuel, told Reuters.

Biofuels have helped drive U.S. corn prices to 10-year highs as funds bet on higher ethanol use and low stocks, whereas in Europe biodiesel demand is pushing oilseed production to record levels.

But Selwood predicts the cost of feedstock would ease by next year.

"Also, the price of palm oil has been artificially held up and I think it would start falling in about three or four months," he said.

The company is building a 1.8 million ton-per-year biodiesel plant in Singapore -- set to be the world's largest biodiesel facility.

The first phase of the plant will come on stream by the end of the year and will produce about 600,000 tons (about 12,000 barrels per day) of biodiesel.

The company, which currently has a production capacity of 120,000 tons per year in Darwin, Australia, expects to increase production to 840,000 tons a year by 2008 when its new plant in Sydney fires up.  Continued...