November 24, 2006

 

Rising Brazil soy oil prices derail one bio-diesel project

 

 

Rising Brazilian soy oil prices, among a series of other factors, have forced leading local agribusiness cooperative Cocamar to indefinitely postpone the construction of its planned 10-million-liter-per-year biodiesel plant, confirmed a company director Thursday (Nov 23).

 

"Up to two months ago, it was viable to construct the mill to supply our own tractors and trucks," said Celso Carlos dos Santos Junior, Cocamar's commercial director in a phone interview with Dow Jones Newswires. "But with the rise in soy prices, that's no longer true."

 

In August, local soy prices hovered around 1300-1350 Brazilian reals a tonne, said dos Santos.

 

This week, however, prices have jumped higher than BRL1650 per tonne, or nearly 30 percent more, as the price of oilseeds and other grains on world markets have soared, due in part to large quantities of US corn being diverted to ethanol production, said local analysts.

 

"The price of soy and its derivatives hitched a ride on the prices of corn," said Emilio Ferrari Ramos, a soy analyst at local consultancy Agencia Rural.

 

With the price rise, a liter of Cocamar soy oil is now a little more expensive than an equivalent liter of diesel in Parana, currently valued at BRL1.55 per liter without the inter-state circulation tax, said dos Santos.

 

Nevertheless, Cocamar - which is headquartered in the southern state of Parana - added that it is wary of drawing any conclusions about the state of Brazil's biodiesel industry from its experience.

 

"In our region, soy is relatively expensive, while diesel is cheaper," said dos Santos.

 

By contrast, in the country's main soy-producing center west states of Mato Grosso and Mato Grosso do Sul, where soy prices are far cheaper, diesel costs about 25 percent more than it does in Parana, he pointed out.

 

The company is currently studying other feedstocks for biodiesel, including residual oils left over after soy crushing.

 

Still, the cooperative's directors also had other doubts about the viability of a long-term biodiesel project.

 

Starting in 2008, Brazil will mandate an obligatory 2 percent mix of biodiesel in all diesel, or roughly 800 million liters.

 

While the government is currently subsidising the biofuel's production by holding biodiesel auctions, as well as offering tax incentives, most producers and analysts expect that such financial support will stop in two years' time.

 

"The government policy toward biodiesel after 2008 may be different," said Dos Santos. "We'd like to produce biodiesel, but we'd also like to wait a little longer, so that there may be fewer uncertainties."

 

If the rise in soy prices continues, however, it may derail other biodiesel projects, said other analysts.

 

By the end of next year, there will be an estimated 1.7 billion litres of installed industrial capacity for biodiesel production, according to local Safras & Mercado consultancy.

 

About 70 percent of that output was expected to come from soy oil, said Miguel Biegai, a Safras & Mercado consultant.

 

Surging soy prices could also delay government plans to push an obligatory 5 percent mix of biodiesel in all diesel up to 2010 from 2013, said Roberto Ardenghy, the director of the National Petroleum Agency Thursday, according to a local Agencia Estado newswire report.

 

"This would make less sense, because we won't have the certainty that there will be enough supply to answer to all of this demand," he said.