Overview of the physical trading sector with the focus on Eastern European market

Transcription

1 Overview of the physical trading sector with the focus on Eastern European market GREENEA 5 chemin des Perrières Coivert - France T. +33 (0) M. +33 (0) F. +33 (0) contact@greenea.com

2 Your broker for waste-based feedstock & biodiesel International transactions Company presentation Since 2007 GREENEA has been offering brokerage services to companies producing raw materials and to companies involved in producing and trading: oleochemicals, bioenergy and biofuels. GREENEA is firmly rooted in many sectors, including used cooking oil, animal fats and biodiesel. We are committed to the development and sustainability of renewable industries. Every day, we strive to assist our clients in sourcing sustainable feedstock such as products from the waste sector (used cooking oil, biomass, animal fats etc). Our business advantage arises from the way we work: we believe in quick responsiveness, long-established experience in the industry and individual operational approach. Products Used cooking oil Biodiesel Glycerine Acid oils and fatty acids Vegetable oils Animal fats Biomass

3 Agenda: Section Page Introduction Description of the physical trading/brokerage business The biodiesel sector Market overview, market dynamics and trends 9 3 Focus on Eastern Europe Opportunities overview and business practice 16 4 Conclusion Discussion 19

4 Different trading approaches and methods: price modelling, logistics, arbitrage on quality, market discrepancy Sources of trading revenues 3 1 Time spread arbitrage Cash and carry or reverse cash & carry arbitrage Depending on the size of biofuel logistic chain 1 2 Quality arbitrage Capacity to blend off-spec products to make them on-spec Depending on cost of off-spec products And on blending capabilities Geographical arbitrage Take advantage of geographical price differences 2 Proprietary trading Taking speculative positions based on an asymmetry of information or understanding Arbitrage Prop trading Business origination 3 Business origination Sourcing and transportation of products for third parties

5 Broker: illustration of the business and main advantages for business partners Deal structure Advantages for both sellers and buyers Physical product 2 $ Strong capabilities Market Oil Company Trader 1 2 Information transmission 1 1 Broker Biodiesel or Feedstock Producer Every morning, Broker sends market information showing prices of previous deals, bid/ask levels of the market Transaction execution If commodity producer/trader is interested in the price bid/offer for a specific time period, they send an order to the broker to execute trade with market participant Knowledge of the potential markets for each product Daily/weekly relationships with counterparties Neutrality in business execution Long scale competitive vision of the market Key services Follow-up of the past closed deals High-quality analyses of market perspectives and opportunities Constant availability for both buyers and sellers

6 Why the market needs traders and brokers of biofuels? Off spec production of biofuel Production of off spec biofuels would lead to significant revenue discount Own marketing enables dilution of off specs with little or no discount Over spec production of biofuel Production of high quality biofuel could enable dilution with low quality products Trading could source low quality products to take advantage of quality market discounts Off spec fossil fuels Biofuel would help improving overall specification of a product that would not be suited for distribution without blending Biodiesel plant

7 7 The role of a broker is also to help to set up a link between people from different cultures

8 Incoterms: International Commercial Terms (for land transportation) Incoterm 2010 Export customs declaration Carriage to port of export Unloading of truck in port of export Loading on vessel in port of export Carriage (Sea/Air) to port of import Insurance Unloading in port of import Loading on truck in port of import Carriage to place of destination Import customs clearance Import taxes EXW Any Mode Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer FCA Any Mode Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer CPT Any Mode Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer CIP Any Mode Seller Seller Seller Seller Seller Seller Buyer/Seller Buyer/Seller Buyer Buyer Buyer DAT Any Mode Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer DAP Any Mode Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer DDP Any Mode Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller/Not including vat/fat. Truck Train

9 Incoterms: International Commercial Terms (for water transportation) Incoterm 2010 FAS SEA & INLAND WATERWAY FOB SEA & INLAND WATERWAY CFR SEA & INLAND WATERWAY CIF SEA & INLAND WATERWAY Export customs declaration Carriage to port of export Unloading of truck in port of export Loading on vessel in port of export Carriage (Sea/Air) to port of import Insurance Unloading in port of import Loading on truck in port of import Carriage to place of destination Import customs clearance Import taxes Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Isotank Vessel Flexibag

10 Agenda: Section Page Introduction Description of the physical trading/brokerage business The biodiesel sector Market overview, market dynamics and trends 9 3 Focus on Eastern Europe Opportunities overview and business practice 16 4 Conclusion Discussion 19

11 Global biodiesel market: production and consumption trends Glossary Biodiesel consumption by country Rapeseed oil: the biggest producers are EU(France, Germany), China and Canada Palm oil: the biggest producers are Indonesia and Malaysia. Become solid from a certain temperature Soybean oil: the biggest producers are China, USA, Brazil and Argentina UCO : used cooking oil Tallow: rendered animal fat FAME: Biodiesel (from Fatty Acid Methyl Ester) UCOME: Biodiesel made from Used Cooking Oil TME: Biodiesel made from tallow Biodiesel production by country Source : INRA from the Biofuels Platform, data from 2012 Malaysia, Indonesia and Argentina are the main producers of biodiesel but with relatively small consumption Market must be constantly aware of the potential changes of legislation in every country Source : Nation, University of Wisconsin-Madison, data from 2012

12 Biodiesel production process: feedstock and final products Steps in the biodiesel production process Incomes : - Vegetal oil : - Farmers - Traders - Used Cooking oil from collectors - Animal oil from rendering plants Outcomes : - Biodiesel - Waste water - Water treatment plant - Glycerin - Cogeneration plants - Animal feed - Pharmaceutical industry Objective: to be present in all parts of the supply chain of the biodiesel process

13 Overview of waste-based biodiesel production process Supply of wastebased feedstock Estrification into Biodiesel Blending with mineral Diesel Distribution Market size 1,300, 000, 000 1,700,000,000 n/a 500,000,000,000 Market players EBIT Margin 8-10% 2-4% % 0.5-1% Inbound Production process Outbound

14 It is difficult to anticipate prices concerning non-listed commodities Correlation matrix for biodiesel commodities FAME 0 TME UCOME Gas Oil FAME 0 1 0,0192 0,8589 0,4881 TME 0, ,1988 0,1825 UCOME 0,8589 0, ,172 Gas Oil 0,4881 0,1825 0,172 1 The correlation between biodiesel and GO prices is almost inexistent except for biodiesel from regular veg-oils and used cooking oil Rapeseed Oil Bean Oil Palm Oil UCO Tallow Rapeseed Oil 1 0,8115 0,0837 0,563 0,2661 Bean Oil 0, ,1471 0,2616 0,4456 Palm Oil 0,0837 0, ,0002 0,4262 UCO 0,563 0,2616 0, ,092 Tallow 0,2661 0,4456 0,4262 0, The correlation among different feedstocks is strong like between rapeseed and soybean oils that have similar technical specifications Rapeseed oil Bean Oil Palm Oil UCO Tallow FAME 0,3383 0,2931 0,1573 0,226 0,0846 UCOME 0,1979 0,194 0,0276 0,2001 0,0054 TME 0,1443 0,1198 0,2581 0,0276 0,2415 Source : Greenea, data from Almost no interaction between feedstocks and biodiesel prices We have to find other indicators to anticipate and make predictions about the biodiesel prices

15 Biofuel sector: a complex market with many factors to consider Influences on biofuels market prices Market is very sensitive to regulatory changes Pressure on feedstock prices : veg-oils, waste based feedstock, grain seeds Limitations in availability of raw material and competition with other sector Import taxes, customs regulation FX market : EUR/Dollar, MYR/Dollar... Diesel consumption Crops efficiency analysis for veg oils in main producing countries Supply/demand overview of each local markets Analysis of lobbying activites and potential new markets

16 Agenda: Section Page Introduction Description of the physical trading/brokerage business The biodiesel sector Market overview, market dynamics and trends 9 3 Focus on Eastern Europe Opportunities overview and business practice 16 4 Conclusion Discussion 20

17 Key roles for a biofuels trader in Eastern Europe Fuel / biofuel (import) Geographic arbitrage: in EE there is a demand for FAME specially for "summer" spec & double counting biodiesel. Biodiesel is shipped from production / trading zones to consumption zones Fuel / biofuel (import) Quality arbitrage: Routing merchandise out of spec to the trading hubs Processing transactions: Opportunity for traders for tolling, blending operations Primary depot Feedstock Challenging logistics: Supply & demand for specific type of biodiesel is geographically mismatched Lack of trading hub in Eastern Europe: Maintaining inventories & doing blending is complicated.

18 Trading business in Eastern Europe and risk management strategies Market Risk Political and regulatory risks (e.g. Ukraine) Currency risk like in Czech Rep with the depreciation of the koruna Financial Risks Credit Risk Operational Risk Lack of visibility on the new trading companies set up recently (counterparty creditworthy) Most customers have no internationally recognized credit rating Infrastructure issues do exist specially on the storage Truck logistic issue for the Waste product ex Hungary Reputational Risk Business and Strategic Risks Lack of transparency Belarus / Ukraine / Moldavia /Russia: non-eu countries (customs issues) Business challenges that we have faced during the last 2 years: Seller Buyer Quality: product coming out of spec agreed upon in the contract Payment conditions: very often seller in EE asking for pre-payment or CAD Logistic: trucks waiting longer time that the authorized time (3hours) due to customs control, many trucks waiting, quality issue, seller waiting to see the money visible in their bank account, trucks blocked for 3 weeks by authorities without any response Default contract: risk that the counterparty will not deliver the contracts at all 18

19 Agenda: Section Page Introduction Description of the physical trading/brokerage business The biodiesel sector Market overview, market dynamics and trends 5 3 Focus on Eastern Europe Opportunities overview and business practice 16 4 Conclusion Discussion 19

20 Conclusion: key success factors in the biodiesel trading in Eastern Europe Develop strategic insights through analytical business assessments and strong know-how of the region Set up network of market participants from producers to refineries through bankers, logistic companies, brokers, traders, institutional & political bodies Stand ready to adapt the deal operation & organization through flexible logistic & counterparties Optimize logistic (in / out) to reduce the costs to the maximum (train / truck logistic with term contracts, etc.) Effective risk management strategy fit to the potential challenges that can be encountered on the Eastern European markets Good knowledge of the legal systems in the biofuels sector on both EU and country levels

21 Katarzyna Gołąb Biofuels & Feedstocks Broker katarzyna.golab@greenea.com Fabien Hillairet CEO, Biofuels & Feedstocks Broker fabien.hillairet@greenea.com Victor Allemandou Biofuels & Feedstocks Broker victor.allemandou@greenea.com GREENEA 5 chemin des Perrières Coivert, France Rumunská Prague - Czech Republic The information presented in this document is provided for informational and demonstrational purposes only. The data is purely indicative and gives no warranty of prices at which transactions may be affected at any time. To the maximum extent permitted by law, no responsibility or liability for the accuracy, quality, correctness or comprehensiveness of the data will be accepted by GREENEA whether arising from the negligence or otherwise. GREENEA shall in no circumstances be liable for economic loss or any indirect or consequential loss or damages arising from the use of this data.