Roman Zenon Dawidowicz | Biodiesel Supply and Price Trend in Global

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Biodiesel Supply and Price Trend in Global and
Asia market
Subtitle Goes Here
Roman Zenon Dawidowicz, Asia Biodiesel, Ethanol
Feedstock Broker July 2015
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Global 2015 The big picture

• As of mid-2015,164 countries around the world
  have adopted at least one type of renewable
  energy target, up almost four-fold from 43
  countries in 2005.

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Asia 2015 The big picture
Country Mandate Translates to Consumption.2014 Production.Capacity/yr Note (eg currrent state and what is expected to happen)
Korea B2   400k mt 800k mt/yr Will increase 2.5 this Aug, 2.5 will last 3yrs. And then will increase 3.0
Japan 0   3.6k mt 6k mt/yr Small market, only some local governments have their own policy for voluntarily using Bio.
Malaysia B7 600k mt/yr 0.59m mt 2.7m mt/yr Plan is to increase to B10 in Sept.Malaysia's nameplate biodiesel capacity of its 21 members is 2.7m mt/year, but current utilization is only 22 in 2014, according to a Malaysian Biodiesel Association member.
Indonesia B15 4.09mill mt/yr 1.57mill mt/yr 3.48mill mt/yr CIMB Research expect a 3.4mill kl consumption for 2015 after proposed biodiesel subsidy.
China 0   0.97mill mt/yr 3.48mill mt/yr Looks to move to 10 biofuels mandate by 2020, and currently has a 15 overall target past 2020

• As gloomy as it may appear now with Gasoil below
  600/mt, the biofuels story is far from dead as
  mandates are still increasing globally in Brazil,
  Argentina, Korea and perhaps Indonesia.

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Asia 2015 The big picture

• Indonesian Palm Oil Levy worsening PME trade to
  Europe and USA (Expected levy 1 July)
• USA likely to move to Arg SME (EPA Mandates)
• PFAD double count PME likely to be the bulk of
  this years EU imports.
• Falling RINS Prices in USA, along with the Indo
  export tax create a lower expectation for USA
  imports.

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Asia 2015 The big picture
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CPO 2015 The big picture

• Malaysian CPO production continues to trend
  higher while exports surge.
• The higher palm oil stocks are likely to dent
  optimism about CPO price prospects.
• Still awaiting the report from the MAA on B10
  usage

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PME Biodiesel 2015 Expectations

• Neutral assumptions on CPO price
• High vegetable oil production
• A weaker global economy and crude oil price
• Slow progress of biodiesel policies in Indonesia
  and Malaysia.
• Expect stocks to rise further, driven by the
  seasonally-higher CPO output. (approx. 2mmt End
  June 15)
• Malay B10 programme to consume about one million
  tonnes of CPO a year, from 700,000 tonnes under
  the B7 programme.
• Other Potential bullish factors
• Concerns that the ongoing El Nino could disrupt
  palm oil supplies
• Indonesias plan to raise their biodiesel usage
  by implementing a CPO levy on planters.
• India CPO demand as drought affects soybean crop

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Other Asia Biodiesel 2015 Expectations

• Korean Exports
• Korea continues to export UCOME to USA and EU
• Problem with Korean exports to EU market is
  securing ISCC feedstock at an attractive price.
• China discretionary import market dead
• Indonesian PME currently priced _at_ 760 CNF South
  China
• South China local PME price is around RMB
  4700/mt, so converting to CNF around 650/mt
• South China local Diesel price is around RMB
  5400/mt, so converting to CNF around 740/mt
• Cycle Oil? apparently 3x30kmt of Cycle Oil
  arrived this month

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2015 Europe - The big picture

• Industrys mortal threat quashed EU Parliament
  backs down on swingeing ILUC factors which would
  have slowly strangled biodiesel
• RED renegotiation caps crop-based biofuels at 7
  market share FQD carbon targets require demand
  growth through 2020
• German GHG mandate adds to market complexity. BUT
  producers can now monetise carbon savings
• Fortress EU remains imports choked to a trickle
  by CVDs and anti-dumping on US, Indonesia,
  Argentina. BUT vegoil inputs largely remain
  derivatives of CBOT direction

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2015 Europe - The big picture

• EU Intercrop tightness has seen rapeseed oil
  stretch its price lead over palm and soy over the
  past month, a trend which poor European 2015 crop
  fundamentals suggest will continue.

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2015 Europe - The big picture

• EU rapeseed forecasts suffer downgrades
  amid widespread drought.
• Tight spreads between palm oil, rape oil
  and soy bean oil have kept
  EU biodiesel and other vegoil buyers
  focused on domestic compressing price spreads
  between RME and FAME zero to near flat.
• RSO spreads to PO of over 200/t through the end
  of this year may leave palm looking attractive as
  a feedstock for EU biodiesel producers.

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Who consumes what and where?
EU Market around 11mn tonnes in 2015, but
estimates complicated by German GHG
experiment Consumption profile is hugely
diverse. German 2.3mn t/yr market consumes 90
crop based biofuels and 10 waste based around
geographically diverse network of inland
refineries UK double counting has encouraged the
polar opposite structure, Spain likely to follow
(DFT, UFOP)
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Double count cuts vegoil demand
Bulk imports shriveled since 2013. BUT growth of
double count incentives has cut VVO demand by
twice the volume consumed. Array of feedstocks
widening to include more palm waste alongside
Tallow, UCO Annual double count consumption at
circa 1.5-2mn t implies VVO demand reduction of
3-4mn t Slack demand has left EU producers
suffering from overcapacity, poor margins.
Integrated producers are idling plants
EU Imports 000t (Eurostat)
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Germany blazes the GHG trail
Germany started counting carbon, not tonnes, from
1 Jan 2015, requiring 3.5 saving. The change has
dragged standard headline GHG savings towards 60
compared to RED 35 standard Higher GHG savings
lower blend volume. German diesel demand masks
drop in overall blend ratio FQD requires 6
transport fuel carbon saving reduction by 2020
implies hefty demand growth from environmental
best in class biofuels, particularly economic
recovery lifts diesel demand
EU diesel demand mn toe (EC)
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Biodiesel vs diesel
2014s booming harvests briefly sent biodiesel
into discount vs gasoil, triggering surge in
discretionary blending worldwide Despite
overhang in world oilseed output, Saudi refusal
to cut production in wake of shale boom sent
gasoil into a faster tailspin shutting
discretionary economic window Oilseed oversupply
remains overseas mandates increasingly crucial
to consuming marginal vegoil tonne and supporting
vegoil price
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Reading the markets
CBOT remains the worlds directional bean oil
benchmark. EU still lacks convincing feedstock
hedge as liquidity remains thin in Euronext RSO
futures. BOGO spreads still widely used. US
advanced biofuel mandate implies up to 27 rise
in US biodiesel consumption 2014-2016. Closely
watching RINs provided accurate bellwether of
post-EPA vegetable oil spike Indonesia working
on 15 biodiesel mandate to soak up palm oil
domestically
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US watch 2015 RVO
EPA proposes ambitious increases over 2014
volumes
    Change on 2014 Standards RINS
Cellulosic Biofuel 106 mill gal 73 mill gal 0.059 106 million
Biomass Based Diesel 1.70 bill gal 0.07 bill gal 1.41 2.55 billion
Advanced Biofuel 2.90 bill gal 0.22 bill gal 1.61 2.9 billion
Advanced Gap 1.094 bill gal 0.077 bill gal - 244 million
Total Renewable Fuel 16.3bill gal 0.37 bill gal 9.04 16.3 billion
Ethanol 13.4 bill gal 0.15 bill gal 7.43 13.4 billion
All volumes are ethanol-equivalent, except for
biomass based diesel which is actual
The percentage standards correspond to the four
separate volume requirements. The standards
represent the ratio of renewable fuel volume to
non-renewable gasoline and diesel volume.
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US watch 2016 RVO
2016 sees further increases, particularly for
cellulosic biofuels which took a write down of
1.42 billion gallons in 2014
    Change on 2015 Standards RINS
Cellulosic Biofuel 206 mill gal 100 mill gal 0.114 206 million
Biomass Based Diesel 1.80 bill gal 0.10 bill gal 1.49 2.7 billion
Advanced Biofuel 3.40 bill gal 0.50 bill gal 1.88 3.4 billion
Advanced Gap 1.394 bill gal 0.30 bill gal - 494 million
Total Renewable Fuel 17.4 bill gal 0.90 bill gal 9.63 17.4 billion
Ethanol 14.0 bill gal 0.60 bill gal 7.75 14 billion
All volumes are ethanol-equivalent, except for
biomass based diesel which is actual
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The future

• With EU Parliament decision to ditch harsh ILUC
  on biodiesel, stage is set for EU industry to
  monetise environmental best practice in pursuit
  of 6 GHG saving subject to 7 first gen crop
  cap
• EU market can grow sustainably needs to adopt
  best practice on feedstock, chain of custody and
  technology to address post-mandatory world from
  2020
• Despite the lack of arbitrage, price direction
  will be determined globally. Risk management
  requires an informed, accurate world view on
  policy, SDs and price

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Contact Information
Roman Dawidowicz mobile [phone]