Eco Investor February 2016

Pre-Profit Securities

There Goes Another Biodiesel Company

Australian Renewable Fuels has placed itself in voluntary administration due to the fall in the oil price and the effect of this on the pricing of its feedstock and on the sale price and margins for its biodiesel.

The company said that historically there has been a relatively short time lag between a reduction in the oil price and a reduction in feedstock pricing, but this time feedstock pricing increased and the historical correlation between the barrel price of oil and the cost price of feedstock broke down. The movement in opposite directions of the oil price and feedstock prices impacted negatively on the company's gross margins.

The company also said that the uncertainty of the Federal Government's policy towards biodiesel in recent years caused it significant financial distress and increased its financial reliance on its debt providers. The board looked at ways to protect the business so it could restart if or when satisfactory gross margins returned, but these needed the support of the major lenders which they declined to give.

PPB Advisory is the voluntary administrator. The board and senior management said they will work with the administrator to explore all options to maximize value for all stakeholders.

The listed emerging biodiesel and ethanol sectors have a very sad history in Australia, of which the fall of Australian Renewable Fuels, Australia's largest biodiesel producer, is just the latest chapter.

Once again, it is hard to believe that a wide agricultural land like Australia, with farmers hungry for cash crops and consumers driving millions of diesel vehicles, can continue to have so much trouble setting up a viable biodiesel industry. (ASX: ARW)

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