Some of the largest agricultural commodity trading companies in the world are preparing to profit from the strengthening of the American renewable diesel industry. The segment has gained momentum since the inauguration of the President of the United States, Joe Biden, in January.
Cargill is one of them. The company invested US $ 475 million to expand its soybean processing capacity and, with that, produce the oil used as raw material for biofuel. Archer-Daniels-Midland (ADM) and Bunge, in turn, work to increase the efficiency of their factories, while Andersons has set up an operating table to negotiate raw materials for green fuel.
The trading companies are looking at a market that is growing in the USA – and which, in the country, has already attracted refineries such as Phillips 66, Marathon Petroleum, HollyFrontier and Valero Energy. “Green” diesel is a fuel produced from biomass and has the same properties as fossil fuel. The product is likely to benefit from President Joe Biden’s broad agenda on climate change, which signals a shift away from fossil fuels.
Although many plants seek to produce green diesel from used cooking oil or animal fats, they will need to resort to traditional vegetable oils, made from plants such as corn and soybeans, to meet demand. “We believe this is going to be a big market,” says Pat Bowe, Andersons’ chief executive. “It is a really important boost in demand for the fat and oil complex, as we haven’t seen for a long time.”
The increase in demand occurs just as restaurants across the US begin to reopen, which increases the consumption of cooking oils. The reopening of the economy also increases fuel consumption.
This move spurred competition with the food industry, which uses oils in everything from Nutella – a major consumer of palm oil – to vegetable-based hamburgers, many of which have soy oil as one of their main ingredients. ADM chief executive Juan Luciano said in January that demand for soybean oil could increase by half a billion pounds (almost 227,000 tonnes) this year because of extra demand from the renewable diesel sector.
This month, the company’s chief financial officer, Ray Young, said that if two-thirds of the planned renewable diesel capacity is installed over the next three to four years, it will require about £ 15 billion (6.8 million tonnes) ) of raw material. “Whatever the way of making this account, we will have a framework in which soy oil will be very, very valued by the sector as an important raw material to sustain the growth of renewable green diesel,” said the executive at a conference of investment. “We believe that this will be a very favorable phenomenon for the North American soybean crushing sector.”
Cargill’s investments include doubling soybean processing capacity at its Sydney, Ohio, plant and expanding processing by 10% in Cedar Rapids, Iowa. ADM said it is working to improve the efficiency of its factories to expand its offering, while Andersons set up an operating table in Kansas City last year to buy and sell raw materials, including soybean oil, tallow and the corn oil it produces at its many ethanol plants, as Bowe explained in an interview last month.
Bunge, the largest oilseed processor in the world, said it plans to disburse to, among other things, increase its storage capacity and improve the efficiency of its refineries. Although all tradings want to be suppliers to the renewable diesel industry, they do not want to produce it themselves.
The market already reflects the new demand. Soybean oil futures contracts jumped almost 25% this year, and palm oil has also appreciated. Demand has also grown as the mix of traditional biodiesel with fossil fuels has become more profitable as crude oil prices have risen.
“Renewable diesel should be in increasing demand as long as government incentives remain in place,” said Seth Goldstein, an analyst at Morningstar in Chicago. “If the Biden government manages to pass clean fuel standards for heavy trucks, the United States is likely to see a jump in demand for renewable diesel.”
But there is also a risk of overinvestment. Some traditional biodiesel plants may even close as a result of the renewable diesel boom. In addition, the increased competition caused by the entry of many companies in the sector can tighten margins.
“We are going to be very careful and show a lot of discipline, which is what this industry needs to do,” said Bunge’s chief executive, Greg Heckman, in February. He added that the company analyzes “with great attention how to meet this growing demand that is structural and will become permanent”.
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