JAKARTA Biodiesel producers should diversify to survive record-high crude palm oil prices, the head of a state-owned engineering firm and biodiesel producer said on Tuesday.
Byproducts that fetch a higher price would help Indonesia's biodiesel producers reach a profitable return on investment despite costly feedstocks and low domestic prices, said Triharyo Soesilo, President Director of PT Rekayasa Industri.
"At the current price, it's not profitable to sell only biodiesel. We can also produce other products with good economic values," said Soesilo, speaking to the Reuters Global Agriculture and Biofuel Summit from Jakarta.
The cost of producing biodiesel in Indonesia has surged to 7,700 rupiah ($0.817) a liter in October 2007 from around 5,000 rupiah a year ago. But at pump stations, biodiesel was sold at the same price as subsidized diesel oil of 4,300 rupiah a liter.
PT Rekayasa Industri and PT Bakrie Sumatra Plantations (UNSP.JK) are building a biodiesel plant with a production capacity of 100,000 tonnes a year.
But the project has already been delayed to 2009 from an initial target in 2008 due to soaring costs of palm oil, and the two firms are in talks about modifying the plant to produce other byproducts.
"If we go ahead, it can produce products that are more expensive than biodiesel," he said, adding it may need additional funds of 20 percent from an initial investment of $25 million.
He said one of the byproducts would be refined glycerin, used in the pharmaceutical industry.
The product could fetch around $1,800 a tonne currently, according to the Indonesian Oleochemical Manufacturers Association.
Other biodiesel producers are also looking at byproducts to boost profitability. For example, Austria's Biolux is building a plant in China that will not only produce 300,000 tonnes of biodiesel a year from rapeseed, but 27,000 tonnes of glycerin and 450,000 tonnes of rapeseed meal.
Soesilo said PT Rekayasa is working with 28 companies to produce high quality jatropha seedlings to supply other biodiesel producers to tap growing interest in the oilseed.
"The problem in developing jatropha is a lack of high quality seedlings. So we provide these to biodiesel producers and if necessary, process it into crude jatropha oil," he said.
Palm oil futures hit a record at 3,420 ringgit ($1,049) a tonne on Monday, up more than 10 percent since the start of the year on a supply squeeze and strength in soyoil and crude markets.
"If there are producers selling jatropha oil at normal price and still below palm oil prices, it will attract lots of buyers," he said.
The government said on Monday it may keep the biodiesel blend in diesel fuel at 2.5 percent due to soaring palm oil prices while trying to boost output from jatropha.
Although Indonesia is now overtaking Malaysia as top palm oil producer, it is developing other raw materials to ensure feedstock supplies for biodiesel and biofuel production.
It plans to plant 5.25 million hectares of unused land with palm oil, jatropha, sugar cane and cassava by 2010.
(For summit blog: summitnotebook.reuters.com/)
(Editing by Michael Urquhart)