Rapeseed biodiesel collapse in Europe
Many factors, recently emerging on the energy market, resulted in falling of the demand for rapeseed-based biodiesel. Policy alternations, low prices of traditional types fuel, Euronext value for rapeseed – all these factors have affected the biodiesel industry and put an end to the rapeseed’s winning streaks
Biodiesel concept
Biodiesel is produced from different kinds of vegetable oil or any kind of animal fats and is meant to be used in regular diesel engines. Thus, being altogether effective and much more environmentally friendly, what appears to be a crucial factor nowadays, biodiesel has become a satisfying alternative to traditional diesel. The European Union plays a great role in the world’s biodiesel production. They have some policy obligations for using specified quantity of biodiesel and also penalties for those who failed to reach those rates.
Benefits of rapeseed
Until recently rapeseed-based biodiesel (RME) was the most commonly-used type. Rapeseed has been cultivated since 20th century B.C. It needs less light and can grow in colder climate, compared to other crops, so it was grown in Europe as early as 13th century A.D. Rapeseed oil can be used as fuel either by itself or in blending with petroleum distillates, without engine damage. Rapeseed is also used as fuel source due to the fact, that it gives more oil per unit of land area compared to other oil sources
Rapeseed’s scaling down
But now RME seems to give its place to the blending of palm-based biodiesel, which now is more profitable due to different reasons. There took place a serious adjustment in Europe, when China changed its salary policy and became unfavourable for foreign investment and by this eventually supported the latest crisis. In Germany, for example, the major RME-users are switching to cheaper kind of biodiesel, soya-based fuel (SME). Other countries are also changing their demand, giving preference to other sources of biodiesel, such as waste oils, palm or animal fats.
Taking into account low oil prices and the fact that palm oil prices are substantially lower than rapeseed oil prices, we may come to the conclusion about further falling of the proportion of rapeseed oil used in the biodiesel sector. Thus, RME’s market shares has fallen by 12% in five years, which means a 650KT fall in the demand for oil in 2015.
Price-cutting factors
There are some more factors, adding to the risk of rapeseed price fall. At current prices, Canadian import can make European production less valuable. There are also evidences about China’s great amounts of stockpiled rapeseed oil. According to approximate estimates, they have something around 6 million tons of rapeseed oil, which is becoming expensive to maintain. According to the recent report of International Grains Council, China is expected to sell 600,000 tons of that oil in 2015-2016. "It could be a great opportunity for the (Chinese) government to get rid of it at some better prices because they’re already taking huge losses on it," said Pownall, an oilseed analyst.
To sum up, if there are no changes concerning oil prices or any alternations with prices of palm, rapeseed prices on Euronext are likely to fall to such an extent, so that to reach a new competitive level.
