30 Jun 2010 12:53

China Clean Energy expects large growth from biodiesel business

By Terry Wang

Shanghai. June 25. INTERFAX-CHINA - The passage of the Renewable Energy Law in 2005 marked a critical turning point in China's strategy to develop its renewable energy industry and ensure energy security. William Chen, CFO of China Clean Energy Inc. (CCE), noticed a unique chance to broaden the scope of his company's business beyond its specialty chemical production.

"As the Chinese government began aggressively pushing its green agenda forward, great opportunities emerged in the rapidly-expanding biodiesel sector," Chen told Interfax.

Crude oil prices began to surge after the law went into effect and CCE, a Fujian Province-based company listed on the Over-The-Counter Bulletin Board (OTCBB), decided to begin producing biodiesel from cottonseed oil and yellow grease. Since then, the company switched to using hogwash oil, which now accounts for 93 percent of feedstock for its biodiesel production.

The company buys its supply of hogwash oil from a local company that collects it from restaurants that would otherwise dispose of it as waste.

The price of hogwash oil currently stands at $507 per ton, but because of its correlation with crude oil prices, it tends to fluctuate along the same lines.

Chen thought that although feedstock supplies have remained relatively stable as of late, CCE still plans to acquire a hogwash supplying company in order to limit its susceptibility to market fluctuations.

In addition, the company is also considering importing palm oil from Malaysia and Indonesia to replace hogwash oil as the demand for feedstock rises in line with its expanding biodiesel production.

Between 2007 and 2009, CCE's revenue declined from $21.8 million to $15.9 million as both diesel prices and demand dropped during the global financial crisis. But the company's businesses are now starting to show signs of a strong recovery.

This January, the company's Jiangyin plant, which has an annual production capacity of 40,000 tons of biodiesel and 30,000 tons of specialty chemicals, went into operation.

Furthermore, CCE's Fuqing plant, which has an annual production capacity of 10,000 tons of biodiesel and 10,000 tons of specialty chemicals, produced around 5,000 tons of biodiesel in 2009. That same year, the company earned $2.4 million by selling its biodiesel at an average selling price of $560 per ton, about 5 percent lower than traditional diesel.

Chen noted that the company sold 4,500 tons of biodiesel in the first quarter of this year and posted earnings of $2.93 million. Additionally, its specialty chemical sales generated $7.81 million in revenue, compared to $2.25 million over the same period last year.

Another piece of good news for CCE is that the average selling prices of its biodiesel products rose to $650 per ton at the end of the first quarter this year. Chen said that this boost will hopefully generate sales revenue of around $11.5 million in the second quarter, an increase of 167 percent over the same period last year.

At the moment, a majority of CCE's total revenue still relies on specialty chemicals, as its new plant is still increasing output and efficiency in that department. But Chen remains hopeful that China's biodiesel sector will become prosperous given the rapid growth of the country's overall fuel demand and its heavy reliance on imports.

Chen noted that CCE's current biodiesel clients are private service stations and power plants, as the company's output is still too small to supply oil giants like China National Petroleum Corp. (CNPC) and China Petrochemical Corp. (SINOPEC). However, he said that demand from this smaller client base will be sufficient to keep a reasonable profit margin for the time being.

Looking ahead, Chen said that the company will continue to gradually ramp up the capacity of its Jiangyin plant and look to acquire various upstream feedstock suppliers.

"We are looking into acquiring two or three service stations to sell our biodiesel in order to increase our profit margin," Chen said.

Furthermore, Chen mentioned that CCE will look at opportunities at Fujian Province's sea port to sell biodiesel to ships and export its output to other countries.