Overview of the physical trading sector with the focus
on Eastern European market
GREENEA
5 chemin des Perrières 17330 Coivert - France
T. +33 (0)5 79 97 97 50 M. +33 (0)6 33 83 65 55 F. +33 (0)5 46 33 86 18
contact@greenea.com www.greenea.com
06.05.2014
Your broker for waste-based feedstock & biodiesel
International transactions Company presentation
Products
Used cooking oil Biodiesel
Glycerine
Acid oils and fatty acids Vegetable oils
Animal fats Biomass
Since 2007 GREENEA has been offering brokerage services to companies producing raw materials and to companies involved in producing and trading: oleo- chemicals, 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.
Page
Introduction Description of the physical trading/brokerage business
1 3
The biodiesel sector Market overview, market dynamics and trends 9 Focus on Eastern Europe Opportunities overview and business practice 16
Conclusion 19
3
4 2
Agenda:
Section
Discussion
Different trading approaches and methods: price modelling, logistics, arbitrage on quality, market discrepancy…
Business origination Prop trading
Arbitrage
Business origination Sourcing and transportation of products for third parties
Proprietary trading Taking speculative positions based on an asymmetry of information or
understanding
Time spread arbitrage Cash and carry or reverse cash & carry arbitrage
• Depending on the size of biofuel logistic chain
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
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3
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3
Sources of trading revenues
Broker: illustration of the business and main advantages for business partners
Strong capabilities
• 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
Market Oil Company
Trader
Broker
Biodiesel or Feedstock
Producer
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Information transmission
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
$ Physical product
Advantages for both sellers and buyers Deal structure
Why the market needs traders and brokers of biofuels?
“Off spec”
production of biofuel
“Over spec”
production of biofuel
“Off spec”
fossil fuels
• Production of “off spec”biofuels would lead to significant revenue discount
• Own marketing enables dilution of “off specs”with little or no discount
• 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
• Biofuel would help improving overall specification of a product that would not be suited for distribution without blending
Biodiesel plant
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The role of a broker is also to help to set up a link between people
from different cultures
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
FAS SEA &
INLAND WATERWAY
Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FOB SEA &
INLAND WATERWAY
Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
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
CFR SEA &
INLAND WATERWAY
Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer
CIF SEA &
INLAND WATERWAY
Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer
Incoterms: International Commercial Terms (for water transportation)
Vessel
Isotank Flexibag
Page
Introduction Description of the physical trading/brokerage business
1 3
The biodiesel sector Market overview, market dynamics and trends 9 Focus on Eastern Europe Opportunities overview and business practice 16
Conclusion 19
3
4 2
Agenda:
Section
Discussion
Global biodiesel market: production and consumption trends
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
Glossary
Biodiesel production by country
Source : Nation, University of Wisconsin-Madison, data from 2012
Biodiesel consumption by country
Market must be constantly aware of the potential changes of legislation in every country
Malaysia, Indonesia and Argentina are the main producers of biodiesel but with relatively small consumption
Source : INRA from the Biofuels Platform, data from 2012
Biodiesel production process: feedstock and final products
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
Steps in the biodiesel production process
Overview of waste-based biodiesel production process
Supply of waste- based feedstock
Estrification into Biodiesel
Blending with
mineral Diesel Distribution
Market size Market players
€ 1,700,000,000 30
n/a 50
€ 500,000,000,000 135
€ 1,300, 000, 000 400
Inbound Production process Outbound
EBIT Margin 8-10% 2-4% 0.1-0.5% 0.5-1%
It is difficult to anticipate prices concerning non-listed commodities
FAME 0° TME UCOME Gas Oil
FAME 0° 1 0,0192 0,8589 0,4881
TME 0,0192 1 0,1988 0,1825
UCOME 0,8589 0,1988 1 0,172
Gas Oil 0,4881 0,1825 0,172 1
Rapeseed Oil Bean Oil Palm Oil UCO Tallow
Rapeseed Oil 1 0,8115 0,0837 0,563 0,2661
Bean Oil 0,8115 1 0,1471 0,2616 0,4456
Palm Oil 0,0837 0,1471 1 0,0002 0,4262
UCO 0,563 0,2616 0,0002 1 0,092
Tallow 0,2661 0,4456 0,4262 0,0092 1
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
Correlation matrix for biodiesel commodities
The correlation between biodiesel and GO prices is almost inexistent except for biodiesel from regular veg-oils and used cooking oil
Source : Greenea, data from 2013-2014
The correlation among different feedstocks is strong like between rapeseed and soybean oils that have similar technical specifications
Almost no interaction between feedstocks and biodiesel prices
We have to find other indicators to anticipate and make predictions about the biodiesel prices
Biofuel sector: a complex market with many factors to consider
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
• 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
Influences on biofuels market prices
Page
Introduction Description of the physical trading/brokerage business
1 3
The biodiesel sector Market overview, market dynamics and trends 9 Focus on Eastern Europe Opportunities overview and business practice 16
Conclusion 20
3
4 2
Agenda:
Section
Discussion
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 Quality arbitrage: Routing merchandise out of spec to the trading hubs
Processing transactions: Opportunity for traders for tolling, blending operations
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.
Fuel / biofuel (import)
Fuel / biofuel (import)
Feedstock
Primary depot
Key roles for a biofuels trader in Eastern Europe
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Financial Risks
Operational Risk
Reputational Risk Business
and Strategic
Risks Market Risk
Credit Risk
Belarus / Ukraine / Moldavia /Russia: non-eu countries (customs issues)
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
Political and regulatory risks (e.g. Ukraine)
Currency risk like in Czech Rep with the depreciation of the koruna
Lack of transparency
Trading business in Eastern Europe and risk management strategies
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
Business challenges that we have faced during the last 2 years:
Page
Introduction Description of the physical trading/brokerage business
1 3
The biodiesel sector Market overview, market dynamics and trends 5 Focus on Eastern Europe Opportunities overview and business practice 16
Conclusion 19
3
4 2
Agenda:
Section
Discussion
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
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.
www.greenea.com
Fabien Hillairet
CEO, Biofuels & Feedstocks Broker +33 5 79 97 97 51
fabien.hillairet@greenea.com
Victor Allemandou
Biofuels & Feedstocks Broker +33 5 79 97 97 52
victor.allemandou@greenea.com Katarzyna Gołąb
Biofuels & Feedstocks Broker +33 5 79 97 97 53
katarzyna.golab@greenea.com
GREENEA
5 chemin des Perrières 17330 Coivert, France
Rumunská 29
120 00 Prague - Czech Republic
