London (Platts)--15Jul2009

Europe's biodiesel production capacity grew by 31% during the first half
of 2009 compared to the year-ago period, but at least half of the region's
plants remain idle due weak demand, thinner tax breaks and subsidized US
imports, the European Biodiesel Board said Wednesday.

The EU, which produces about two-thirds of world's biodiesel, saw
biodiesel production capacity rise to 21 million mt by July 2009, up from 16
million mt the year before, the EBB said.

Biodiesel production stood at 48% of capacity in 2008, with output
totaling 7.75 million, up from 5.71 million mt in 2007, the EBB said.

"This situation means that the important investment from the industry has
so far not been mirrored by the corresponding market deployment," the EBB said
in a statement.

The EBB's figures show that biodiesel capacity in Germany, which produced
36% of Europe's biodiesel last year, slipped by 100,000 mt during the first
half of 2009, reflecting the government's decision to raise taxes on green
fuels.

The EBB said, however, it believes that the slowdown in the European
biodiesel market was mainly the result of "unfair" competition with US
biodiesel (B99) imports and concerns that stipulations in an EU renewable
energy directive might not be met.

Earlier this year, the EBB said that European imports of mostly US-
sourced B99 biodiesel jumped 43% in 2008, as importers exploited US tax
credits on the renewable fuel. The EBB also said the five-year anti-dumping
and anti-subsidy duties imposed on US biodiesel (B99) imports last week by the
EU would be a boost for the market.

"This decision will bring a better situation for our producers," EBB
project director Amandine Lacourt said. "There is still uncertainty, but now
that we have the duties in place the market has improved."

The EU slapped duties on US imports in a range of Eur213-Eur409/mt
($299-$575/mt), which came into effect this week.

European biodiesel makers have yet to benefit from initial EU antidumping
duties on imports of B99 biodiesel imposed in March, due to large stocks of
the US-made product already at EU ports, the EBB has said.

"There was some 200,000 mt of B99 in Rotterdam at the start of the year,
this should run out in a few months and we expect the national markets to
supply more," Lacourt said.

She declined to predict Europe's potential biodiesel production by
year-end, but said the EBB expects output to rise at least in line with the
31% capacity increase seen year-on-year during the first half of 2009.

CLARITY NEEDED ON EU TARGETS

The EBB said market uncertainty also remains due to lack of clarity on
what part biodiesel makers will play in meeting the EU's recently published
renewable energy directive.

The directive's 10% binding target for renewables consumption in the
transport sector by 2020 will require biodiesel production to reach 30
million-35 million mt of biodiesel, the EBB estimated. It had been feared late
last year that the 10% target might not be achievable.

"The increase of biodiesel production in 2007 and 2008 is still not in
line with the ambitious EU objective for climate change mitigation outlined in
the recently published renewable energy directive 2009/28," the EBB said.

Despite the tough environment, the association expects the directive to
be an important driver of the biodiesel market. The directive came into force
last month.

The definition of key biofuel sustainability criteria are due from the
European Commission before the end year-end. Producers are also waiting on the
drafting of the National Action Plans by June 2010, where member states must
decide the role for biofuels in meeting the 10% renewable fuels target 2020.

"The EU cannot afford to see the development of uncoordinated
sustainability requirements at Member States level," the EBB said. "This would
be disruptive for the EU biofuels industry and incompatible with both the EC
internal market rules and WTO principles."

Looking ahead, EBB said it expects the increasing EU diesel deficit,
which is expected to continue beyond 2030, to support the biodiesel market.

In 2008, biodiesel accounted for 78% of the biofuels consumed in the EU.
--Robert Perkins, robert_perkins@platts.com
--Isis Almeida, isis_almeida@platts.com