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Summit News

Biodiesel growth seen stagnating in 2008

CHICAGO (Reuters) - U.S. biodiesel industry growth looks set to stagnate in 2008 given poor profit margins as skyrocketing input costs chill production, the chief executive of an industry trade group said on Monday.

“The economics overall for the biodiesel industry are extremely challenging right now. There’s no question about it there’s been a cooling off what has been some irrational exuberance that has gone on in the investment in biodiesel production capacity over the last two years,” Joe Jobe, CEO of the National Biodiesel Board, told the Reuters Global Agricultural and Biofuels Summit in a telephone interview.

The biggest culprit behind the sliding profit margins has been soaring input costs, Jobe said. The price of soybean oil, the primary feedstock to produce U.S. biodiesel, has reached levels never seen before in history -- making it difficult for many plants to make a profit.

Domestic biodiesel margins are running about 10 cents per gallon to a minus 30 cents per gallon, industry analysts said.

Just this week, the price of soybean oil on the Chicago Board of Trade, the world’s benchmark for agricultural prices, rose to an all-time high of over 54 cents a pound.

Then there’s the doubling of biodiesel output over the last two years amid government incentives, boosting supplies in a move to wean Americans from foreign oil. The U.S. government offers $1 per gallon subsidy for biodiesel, which is blended into motor fuel and heating oil.

More than 100 plants have been built in the past 24 months, raising the tally to about 170 with most in the Midwest and on the coasts.

In 2004, only 25 million gallons of biodiesel were produced in the United States. By 2006, domestic production increased to 250 million gallons and 2007 production is estimated at 450 million gallons. But that’s still minuscule compared with the 37 billion gallons of diesel used annually to fuel U.S. vehicles.

Jobe forecast 2008 U.S. biodiesel output to at least hold even with last year. But said he’ll have a clearer picture once the board completes its latest industry survey.

“Preliminary it’s showing that several biodiesel producers are cutting back, temporarily shutting down or slowing down, and proposed projects are getting postponed or canceled,” Jobe said.

Evidence of the chilling effects of depressed profit margins came just last week when New Jersey-based U.S. Bioenergy of America Inc filed for bankruptcy protection.

Earlier this month, the largest U.S. biodiesel producer Imperium Renewables Inc withdrew its plan for an initial public offering, citing unspecified unfavorable market conditions.

LONG-TERM OUTLOOK BRIGHTER WITH NEW ENERGY BILL

While the short-term outlook looks bleak, the new U.S. energy bill calling for biofuel production to jump five-fold to 36 billion gallons by 2022 should definitely help fuel the biodiesel industry, Jobe said.

Ethanol, made mostly from corn in the United States, will comprise the bulk of that but it also means biodiesel production will expand, he said.

“Our industry’s vision ... is to displace 5 percent of the diesel fuel pool by 2015,” Jobe said. “That comes to 1.85 billion gallons which happens to be almost the exact amount of diesel fuel that the U.S. refined from all of the crude oil it imported from the nation of Iraq last year.”

Reporting by Christine Stebbins; Editing by Marguerita Choy

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