Overcapacity, squeezed margins and massive imports should continue to hurt Europe's biodiesel industry this year and lead to further consolidation, the chief executive of EU giant Diester Industrie said on Monday.
Several biodiesel firms in the 27-member bloc closed their doors last year, knocked down by cheaper imports mainly from Argentina, a wide spread between rapeseed oil and crude oil that hit margins and competition from other types of biodiesel such as those made from recycled cooking oil.
The main problem facing the European market is overcapacity, Diester Industrie CEO Bernard Nicol, told the Reuters Global Food and Agriculture Summit on Monday.
"Roughly 50 percent of the biodiesel production is idle. Of course this will mean very bad consequences for smaller businesses," Nicol said in a joint interview with the CEO of parent Sofiproteol.
He said the biodiesel capacity in the 27-member bloc was at 21 million tones while production was at 10 million tones and could rise at most to 11 million this year, Nicol said.
More consolidation was therefore to be expected in the biodiesel sector this year, Nicol said, with moves like Swiss commodities giant Glencore's GLEN.UL takeover of Biopetrol (B2I.DE).
"We will see other actions of this type in the coming months and years," he said.
But his company, the largest maker in the European Union, did not envisage any new acquisition that would raise its output over the 2.4 million tones of biodiesel produced last year, approximately a quarter of total EU output.
"We don't want to put all our eggs in the same basket," he said.
Spain is one of the country's worst hit by overcapacity in Europe. The two biggest biodiesel plants with a combined production capacity of 900,000 tones a year are idle and many are running at minimum output levels.
SQUEEZE
The other key problem for the sector was the huge squeeze of margins as the spread widened between edible oil, used as raw material, and gasoil, used as a benchmark sale price.
"In 2010 the ROGO (for RapeOil/GasOil spread) was extremely unfavorable because rapeseed and rapeoil prices went through the roof while the gasoil market was rather quiet," he said.
This made Diester Industrie predict last month a difficult 2011 — a forecast Nicol tempered in light of the recent surge in crude oil prices linked to the unrest in North Africa, especially Libya, and a correction on oilseed markets.
European rapeseed futures lost more than 16 percent since a high hit mid-January in the wake of world oilseed prices mainly pressured by forecasts for a large Latin American crop and a wide pullout of investments funds from commodities.
