>Latin American biodiesel is booming as a result of domestic demand and a healthy export market, as Europe slaps duties on the US

30 October 2009 15:49  [Source: ICB]

BIODIESEL PRODUCTION in Latin America has been on the upswing for several years, but few have been paying much attention to it. Rather, heads were turned North, where US biodiesel plants mushroomed and grew into a substantial export business, sending about 90% of biodiesel produced to Europe.

But the biodiesel world changed dramatically this year. The European Commission smacked fines and duties on the US biodiesel industry, effectively shutting off exports by April.

"I haven't moved anything since March," says one US trader.

The Commission slapped duties ranging from €213-409/tonne ($319-614/tonne) on US biodiesel from suppliers such as Archer Daniels Midland, Cargill and Peter Cremer, deeming it necessary to level the playing field for the European renewable fuels market.

The duties cover exported US blendstocks of B20 (20% biodiesel, 80% conventional diesel) or higher, and will last for five years.

But while public and industry attention was riveted to the export scuffle between the US and Europe, Latin America's biodiesel industry came of age. "It's all coming from South America now," notes a small US-based producer.

ARGENTINA EXPORTS BOOM
Brazil's sugarcane-based ethanol industry dominates the South American green energy landscape and has set the pace in biofuel's progress.

But the Latin American biodiesel industry didn't grow up there. Instead, it came of age in Argentina, home of the pampas and the tango - and now to a thriving biodiesel industry that essentially replaced the US in exporting biofuel to Europe.

Traders in the US estimate that about 120,000 tonnes/month of biodiesel moved from Argentina to Europe during the second half of 2009. The traders' estimates are backed by hard data from Dubai, United Arab Emirates-based shipping firm Blue Star Shipping, which tabulated biodiesel shipments from three ports in Argentina - with San Lorenzo said to be the busiest - totaling 137,950 tonnes shipped in July, compared with 93,113 tonnes in June.

The EU's tariff on US-made biodiesel offered a boon for Argentina, with 75% of its biodiesel exports this year coming after passage of the tax in March 2009.

Traders doing business between San Lorenzo and Europe say most of the material is going into the Netherlands' Amsterdam-Rotterdam-Antwerp (ARA) port complex. From ARA, the biodiesel was distributed across net-short diesel Europe, largely heading for Germany and Spain.

During 2009, the Netherlands was recorded as the largest importer of Argentine-produced biodiesel, importing 387,667 tonnes, or nearly 72% of all the South American country's production. Around 109,150 tonnes entered ARA in July, more than doubling the 54,000 tonnes brought in during June.

By late September, Camara Argentina de Energias Renovables (the Argentina Renewable Chamber, or CADER) said 109,000 tonnes of biodiesel were produced in August following excellent production rates in July. That confirmed Argentina as the fifth-largest (960,000 tonnes in 2008) of the world's top biodiesel producers.

Brazil is in fourth place (1.03m tonnes) in the top global producer lineup, with France third (1.82m tonnes), the US second (2.33m tonnes), and Germany (2.82m tonnes) at the top, according to CADER.

A CADER study showed Brazil producing more biodiesel than Argentina in each of the past two years - twice as much in 2007 and 7% more in 2008 - but Brazil's lack of biodiesel exports puts its production figures below the radar, the report said.

The US was the clear No. 2 until the April duties knocked its production rates to 25% of capacity, at best, pushing it out of the export market and likely out of the top five - maybe out of the top 10 by the year end.

BRAZIL PRODUCES FOR DOMESTIC USE
While US domestic biodiesel demand is languishing over its once-lucrative export market and lack of integration into the domestic diesel infrastructure, Brazil's domestic demand requires the country's entire biodiesel production at this point.

Brazil does not export biodiesel in any significant quantities because of a domestically mandated renewable fuel requirement that 3% of its biodiesel must be included in its diesel pool. The 3% biodiesel blend mandate will increase to 4%, effective from January 2010, rising higher by additional increments to 2015. Although Brazil primarily utilizes soybean oil as biodiesel feedstock, there is some small multifeed production that makes use of animal fat - similar to that found in the US.

As Brazil's strong domestic use keeps its biodiesel production under the radar, Argentina's biodiesel industry is going in the opposite direction.

Argentina's No. 5 global producer position is underpinned by production levels, anticipated to be about 1.2m tonnes in 2009, according to CADER, which is about 10% of the world's biodiesel supply.

The country's exporting ability may decrease as Argentina takes steps toward more energy independence and better domestic utilization of renewable fuels. It is working on a legally mandated B5 (5% biodiesel; 95% petrodiesel) requirement that is scheduled to begin in January 2010.

SELLING THE IDEA
Like the US, Argentina sold the idea of biofuels, both ethanol and biodiesel, largely on the premise that the industry would benefit the little guy - the farming communities and other small operators.

That sell-job was part of the frontier atmosphere that permeated the 2006-2008 land-rush to put up numerous smaller-sized plants located away from good logistics and demand centers.

Another similarity is the scrutiny of prevailing domestic tax structures by the Commission, as Argentina has its own share of taxes and politics.

But Argentina's exporting prowess may fade in 2010, as the country aims to put into place domestic mandates for gasoline and diesel to be mixed at 5%, beginning in January.

"Europe will need to find low-cost providers like Latin America," one South American biodiesel market participant says.

Burgeoning production in Colombia, Peru, and Ecuador may soon be seen on the global trade scene. Colombia had at least six biodiesel projects underway at the end of 2008, totaling around 500,000 tonnes. Peru and Ecuador have production units planned, although they are not expected to enter the global market in 2010.

It's here. It's real. It's Latin American biodiesel and it's ready to take its place in growing a future for biofuels.

In Argentina, Camara Argentina de Energias Renovables (the Argentina Renewable Chamber, or CADER) states that there are emerging castes of biodiesel producers:

Large, successful producers that are also oilseed crushers and own big-volume biodiesel plants integrated to the oilseed crush and close to favorable logistics setups; these also have the best access to financing. Among this group are Renova, ECOFUEL Argentina, and LDC Argentina.

Large-volume production unit owners not backwardly integrated to oilseed crushers, but that do have access to financial backing and are reasonably situated near ports. These have the disadvantage of having to purchase feedstock oils from the oilseed crushers. Among this group are Unitec Bio, and Explora.

Small to medium-volume independent facilities that use affordable, in-house technology, but are often far from main ports and good access to feedstock. These smaller units frequently survive by toll operations and are less likely to be able to access overseas clients or financing.

Judith Taylor has been an ICIS editor for 10 years, with experience in a wide range of markets, including glycerin, other oleochemicals, and biodiesel. She currently covers several oleochemical products as well as caustic soda and polyvinyl chloride (PVC) in the US and Latin America. She holds a Bachelor's degree in biology, with a minor in chemistry

Additional reporting by Ben Lefebvre of ICIS pricing in Houston