07/05/2008 - 11:05

Biofuels players hit by rising agricultural commodity prices

07/05/2008 - 11:05

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Hit by the high cost of feedstocks, biofuels players Mission Biofuels Ltd and Australian Renewable Fuels Ltd are both seeking to adapt their strategies as rising agricultural product prices disrupt their business models.

Biofuels players hit by rising agricultural commodity prices

Hit by the high cost of feedstocks, biofuels players Mission Biofuels Ltd and Australian Renewable Fuels Ltd are both seeking to adapt their strategies as rising agricultural product prices disrupt their business models.

Mission today said the current high feedstock prices make it unviable to produce biodiesel but its wind power business is performing well and it has plans to add more windmills in the future and it has also successfully moved into making pharmaceutical grade purified glycerine.

Earlier this week, North Perth-based Australian Renewable Fuels Ltd announced it would go to investors for about $3 million to repay debt and provide working capital as it seeks to sell assets and consolidate its operations to the mothballed Picton plant from which it hopes to produce fuel for a major mining player.

The troubles in the biofuel sector comes amid criticism that it is competing with food supplies.

In a statement today, Mission Biofuels said it would only produce biodiesel if it could do so profitably.

"This will only be possible if we can secure sufficient quantities of feedstock at reasonable prices or if we are able to achieve higher prices with our off-take partners in both the US and Europe," it said.

"The company has been investigating several opportunities to secure moderate quantities of feedstock at reasonable prices which will allow us to produce and sell biodiesel on a jobbing basis."

Mission said crude palm oil remains the cheapest vegetable oil as the cost of rapeseed oil and soy oil have increased sharply, the company said.

ARF's feedstock problems have revolved around tallow costs which have been hit by the eastern states drought and rising demand from international soap producers.

ARF is planning to see its South Australian plant but want to retain Picton because it remains confident of a 5 million to 7.5 million litres a year contract from a mining copany which will be linked to feedstock prices.

ARF needs to obtain $1.5 million before the end of the financial year to construct a blending facility on the proposed customer's minesite.

Mission said it expects to produce and sell about 4,000 tonnes of biodiesel this month and, under an interim strategy, is ramping up its production of pharmaceutical grade purified glycerine.

Mission Biofuels plans to add more windmills, totalling 15-18 megawatts of generating capacity, to its business in coming years.

The windmills will assist the company to substantially reduce its effective tax rate for its feedstock operations in India this financial year while generating tax-free income by producing saleable electricity for the next decade.

Mission Biofuels expects to post earnings before interest tax, depreciation and amortisation of about $9 million for the 2007-08 financial year.

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