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European biodiesel market set for takeovers

European biodiesel companies will undergo a phase of takeovers and bankruptcies in coming years as investment capital dries up and producer margins are squeezed, according to Frost & Sullivan Inc., a market consulting company.

The production of biodiesel, made from oilseeds and animal fat, will more than double by 2012 to over 8 million tons, the New York-based company said in a Web presentation yesterday. That will exceed the demand spurred by the EU biofuels mandate, creating a surplus and increases in feedstock prices, according to Frost & Sullivan Inc. „Enthusiasm to investment in biofuels companies has caused overcapacity and problems with regard to feedstock supply,” Robert Outram, a petrochemical-industry analyst, said from Oxford, England.

„The economic climate is looking more challenging. Bankruptcies are definitely an option.” The 27-nation EU wants biofuels to make up an average 5.75% of transportation fuel by 2010 and 10% by 2020, in an effort to reduce dependence on fossil fuels and curb greenhouse-gas emissions. Most member states, with the exception of Sweden, Germany and France, are likely to miss the first target, according to the European Commission.

Biodiesel constitutes about 80% of the EU's biofuels production, 80% of which comes from rapeseed, grown in Germany, France, the UK, Poland and the Czech Republic. „Farming is almost at capacity in Western Europe,” Outram said. The entire EU oilseed crop would have to be used to meet the 5.75% target for 2010, he said. Rapeseed futures have gained 23% in Paris this year, trading at €276.25 ($482.16) yesterday on Euronext.liffe. Producer margins have been further squeezed by the drop in oil prices, which makes the alternative fuel less competitive.

European biodiesel producers break even with oil prices at €60 ($78) a barrel, according to the European Commission's Energy and Transport unit. Crude oil prices have dropped 14% in the past year, trading at $57.57 a barrel on the New York Mercantile Exchange yesterday. „Banks and financial bodies like to see all risks hedged before investing in a company,” said Outram. „Some of the numbers for these companies are looking problematic,” he said, without identifying any producers. „Feedstock prices are up and oil prices are down.” (Bloomberg)