Monday, May 28, 2012

The New Reality

Sometimes when you think you have it all figured out you get surprised. The way that the market behaves in the by-product oil industry continues to come up with new surprises. Currently close to record level Brent oil prices as well as PFAD prices makes it difficult for some to understand why prices of low quality bio oils have fallen 25-30% since the autumn.

In my optics there are two main reason for this unusual situation:

1. The relatively short and mild winter in Europe in 2011-12 resulted in much lower consumption of bio oil for heating than usual. Many contracted volumes were not consumed and are still in stock. With full stocks, demand is currently low and prices low as well.

2. The latest dioxine scandal in animal feed oils in early 2011 (the Harles and Jentzsch scandal) caused a lot of animal feed oil buyers to tighten their requirements for supplier documentation and analyses. A new EU feed regulation will step into force in August 2012 and will make it more expensive and in many cases very difficult to use lower quality oils for animal feed. This has already lead to more of this oil being used to technical applications.

Market changes and changes in legislation have changed the dynamics in the market forcing the oils to flow in new directions. With very high price levels of PFAD companies in the biodiesel and oleochemical industry that can take in the acid oils are benefiting from this. Ability to take high FFA material is all the rage in the biodiesel industry these days.

Combined with the new requirements for certification according to the Renewable Energy Directive (RED) changes are plenty and the need for people and companies that are competent in understanding and navigating in the constantly changing landscape is increasing.

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