Grease still has the chance to go upwind
On the supply side, with the rapid growth of global protein demand and the slowdown in oil demand growth. In recent years, global soybean meal feed demand has increased at an average annual rate of 5%, while soybean oil demand growth rate is only 3%. In the case that protein demand becomes the main driving force of crushing, oilseed yield reduction has little effect on crushing, but the output of oil increases with the increase of protein output, and the oil market enters the passive accumulation state. In addition, palm oil production in Southeast Asia continues to recover, and global oil supply is abundant.
At the demand side, the consumption of vegetable oil is limited by population and income levels, and the growth rate is limited. At present, global population growth has peaked, and the marginal boost effect of income on vegetable oil consumption has declined. In contrast, industrial consumption has more potential. With the continuous rise of international energy prices and the growth of human demand for renewable energy, the biodiesel industry is once again ushered in a golden age of development. In the future, the key to the growth of vegetable oil consumption will fall on industrial consumption, especially biodiesel consumption.
Policy is conducive to biodiesel production
Policy guidance and profitability play a key role in biodiesel production and demand. Policies include encouraging the development or mandatory blending of the biodiesel industry, such as the $1/gallon tax credit given to biodiesel blenders in the United States, the EPA's mandatory blending requirements for production and blenders, and the Indonesian B20 program. . Profits mainly include biodiesel production profits and blended profits.
Policy and profit affect the production of biodiesel. Under different circumstances, the impact of the two has a primary and secondary impact. When the crude oil price is at a low level, the production and blending of the biodiesel industry is at a loss, and production is heavily dependent on the implementation of subsidies and mandatory blending policies. At this time, the policy plays a leading role in production. When crude oil prices are at a high level, driven by profits, enterprises are more active in production, and commercial blending has also increased. At this time, profits have once again played a leading role in biodiesel production through market-based means. At this time, the demand for oil and fat as a raw material for biodiesel is correspondingly increased, which in turn boosts the price formation.
There is a clear positive correlation between crude oil prices and biodiesel production, and this correlation is even closer when crude oil prices are at a high level in 2015. According to calculations, the correlation coefficient between US crude oil price and US biodiesel production was 0.77 in 2003-2014, and the crude oil price fell to less than 0.15 in 2015. The reason is that when the crude oil price is low, the regulation of profit on output is weakened, and the policy effect prevails. This also supports the above viewpoint from the side.
Currently, relevant industrial policies are more favorable for biodiesel production. Following Indonesia's expansion of biodiesel subsidies to the mining industry at the beginning of the year, the Indonesian government is testing to increase the biodiesel blending rate to 30%, which is expected to bring 800,000 to 1 million tons of biodiesel consumption. According to the latest EPA draft standard for renewable energy blending, by 2020, the legal blend of biodiesel will reach 2.43 billion gallons, which is nearly 16% higher than the market expectation of 2.1 billion gallons.
Profit level has risen to a high level
Internationally used biodiesel production monitoring indicators mainly include POGO and BOHO. Among them, POGO is the price difference between palm oil and diesel oil, and BOHO is the price difference between soybean oil and fuel oil. These two indicators are widely used in the biodiesel and downstream middle distillate markets, respectively, indicating the price comparison between the palm oil/soybean oil feed and the gasoline and diesel market. The narrowing of the POGO (BOHO) spread indicates that the cost of producing biodiesel using palm oil (soybean oil) will be closer to the cost of gasoline and diesel. If the production cost of PME (SME) is lower than the price of gasoline and diesel, the production of biodiesel will be driven by profit. Free growth, while the impact of blending on production is weakened.
Because of the low price of palm oil, it is more economical to produce biodiesel. In general, POGO is lower than BOHO, which means that when crude oil prices rebound from low levels, the production of biodiesel from palm oil is the first to have a positive profit, followed by soybean oil and vegetable oil. Therefore, in the early days of crude oil, the rise in palm oil prices was often the most obvious.
The OPEC meeting on June 22 reached a nominal production increase agreement of 1 million barrels per day. However, it is difficult for countries with recent decline in production to reach production quotas, and other oil-producing countries may not be able to fill the gap left. The actual increase is expected to be 60. 10,000 - 800,000 barrels. Although the increase in production is not good, the bearishness has basically been cashed in advance. The United States has stepped up its sanctions against Iran and urged its allies to stop importing Iranian crude oil. Recently, the focus of the crude oil market has moved upwards, so that the POGO and BOHO spreads have narrowed. The POGO spread returned to the low end of mid-May and helped to improve the PME blending profit.
Countries make full use of local advantages in the production of biodiesel. The main vegetable producing areas in the EU are mainly vegetable oil. The United States is rich in soybeans. The main raw material for producing diesel oil is soybean oil. In Southeast Asia, the most abundant palm oil, the main raw material for biodiesel production. For palm oil.
Biodiesel production profit accounting is similar to other products, except for product revenue minus raw material input costs and fixed costs. For the production of biodiesel, the raw materials are all kinds of oils and fats (including soybean oil, vegetable oil, palm oil, corn oil, animal fats, discarded catering oil, etc.) and methanol, and the output is biodiesel and by-product glycerin. Due to fluctuations in the prices of biodiesel and input materials, production profits are also constantly changing, and they need to be accounted for and monitored.
According to the distribution of US biodiesel capacity released by EIA in 2017, it is found that the US biodiesel production capacity is spread over more than half of the country. Among them, Iowa, Missouri, Texas, and California have the most production capacity. Among these states, Iowa is a major producer of US soybeans, with a production share of up to 14%. In terms of biodiesel production capacity, the state has 11 processing plants with an annual production capacity of 423 million gallons. Soybean and biodiesel production combine to make SME production in Iowa typical. The profit calculation below is based on the state's processing plant.
For a typical SME processing plant, for every 1 gallon of SME produced, 7.6 pounds of soybean oil, 0.71 pounds of methanol, and 7 cubic feet of natural gas are required to obtain 0.9 pounds of by-product glycerin. Other variable costs are $0.25 per gallon, fixed cost. It is $0.26 per gallon. In the specific production profit accounting, biodiesel and soybean oil are quoted from USDA, methanol is quoted from Methanex, natural gas is quoted from EIA, other variable costs are mainly for labor and utilities, and glycerin is quoted at $0.03/ lb. By substituting data, you can calculate the net profit of a typical SME processing plant.
For the Iowa processing plant, there has been a certain positive production profit since the beginning of 2017. Since January 2018, the weakening of the US soybean oil and the strength of the crude oil (the BOHO spread has shrunk) has risen rapidly. From February to May 2018, the profit level has risen to a high level since 2015.
The increase in production profit directly stimulated the production of biodiesel and the use of US soybean oil. According to EIA data, in March 2018, US biodiesel production was 147 million gallons, a 17% increase from the previous month and a 27% increase from the previous year. From January to March 2018, US biodiesel production was 397 million gallons, an increase of 31.02%. The use of soybean oil in biodiesel shows that in March, the use of soybean oil was 624 million pounds, a 26% increase from the previous month and a 69% year-on-year increase to a record high. From the proportion of soybean oil used in biodiesel production, in March, US soybean oil production was 1.777 billion pounds, of which 624 million pounds were used to produce biodiesel, which resulted in 31.6% of soybean oil used in biodiesel. It rose by about 3.6%. Under the stimulation of high profits, the production of biodiesel in the United States will remain high.
Overall, at present, although the oil and fat market is suppressed by high inventory and palm oil production, on the basis of the strength of the crude oil market, the demand for biodiesel can be expected, which will become a potential benefit to boost the trend of oil. In the medium to long term, the low POGO and BOHO spreads are expected to support the price of oil in the biodiesel market. Unless the crude oil price falls sharply, there is limited room for the oil to continue to explore. Later, the focus was on the price trend of crude oil.