Biofuels Corporation Charts

I have just posted the following on iii.co.uk in response to someone asking about the price of Rape Oil, amongst other questions:

Rotterdam prices for vegetable oils in late December 2006; source Bloomberg:

Oil €/tonne £/tonne Litres/tonne Pence/litre %RapePrice

Palm €444.05 £297.75 1190.0 25.0p/l 68.16%
Soy €521.00 £349.35 1189.3 29.4p/l 79.98%
Rape €650.00 £436.81 1190.0 36.7p/l 100.00%

The prices of Soy and Palm, being significantly less than that of Rape, are significant to BFC, because they have the capability of using any blend of the three feedstocks to produce biodiesel.

The German biodiesel industry is primarily based on Rapeseed oil, most producers buying their feedstock from the domestic market.

On 1st January 2007 in Germany, biodiesel becomes a mandatory constituent of diesel, there being a €0.60 per litre tax if diesel is shipped with zero biodiesel content.

If diesel is shipped with biodiesel as an admixture, then Germany taxes the mixture at the full rate of €0.47 per litre up to the quota of 4.4% of biodiesel shipped by energy content, or 5% by volume. Pure biodiesel (B100) will be taxed at €0.15 per litre.

Beyond the quota of 5% biodiesel by volume, biodiesel is taxed at only €0.15 per litre. Therefore, the more biodiesel that German distributers ship beyond the quota, the cheaper and more profitable it becomes for them.

Accordingly, there are penalties for shipping none and incentives for shipping lots - the more they ship, the bigger the incentives.

German producers will therefore attempt to ship as much biodiesel as they can sell and the demand for biodiesel will be strong due to the resulting pricing structure. However, the biodiesel production capacity in Germany will be close to 4 million metric tonnes in 2007, slightly more than the forecast demand and at first glance, this is bad news for BFC.

However, the good news for BFC is that they can produce biodiesel significantly cheaper than can most of the German biodiesel producers, due to the fact that BFC are able to use Palm and Soy oils, rather than Rape, whilst still maintaining sufficient quality to meet the required EN14214 specification. BFC also ensure that their feedstock sources meet the German environmental requirements for sustainability. Because of the expected high demand for biodiesel and the obvious need for distributers to buy it at the lowest cost, BFC should have little difficulty in selling biodiesel into the German market at competitive prices due to their lower feedstock costs and at a good profit margin for the same reason.

Netherlands is also mandating 2% biodiesel content beginning in January, but I don't yet have all the details.

BFC's current debt of around £90m, if repaid over a period of, say, 15 years at, say, 10% per annum including principal and interest payments, amounts to the equivalent of approximately 3p/litre when shipping at current nameplate capacity of 284 million litres (250,000 tonnes) per annum.

With a feedstock blend of 60% Soy and 40% Palm, for example, BFC's average feedstock cost would be around 27.6 p/l, which undercuts Rape by around 9 p/l and easily covers the cost of their debt, leaving plenty of headroom to allow for their additional shipping costs into Germany relative to those of local suppliers.

When BFC have Teesside 2 & 3 up and running, their debt may be around (guess) £150m, but by then, they will be shipping 650,000 tonnes per annum and, by similar calculations, their debt will cost around 2 p/l, which will make them even more competitive.

BFC's future is bright.