* Bunge, Cargill launching Brazil biodiesel plants
* Vale building palm oil plants in Amazon for fuel
* Producers eye Spanish market, export challenges
By Caroline Stauffer
SAO PAULO, Nov 7 International firms are
investing in biodiesel production in Brazil, a country on the
verge of becoming the world's top grower of soybeans, the main
source of the biofuel.
They are betting on increasing domestic demand, rather than
export potential, in an emerging power that uses more diesel
than gasoline. Many also believe Brazil's government soon will
raise the amount of biodiesel required in diesel blends.
Bunge Ltd won approval last month to start operating
a $30 million biodiesel plant in Brazil in 2013 and has said it
is unlikely to build more sugarcane mills here due to the high
cost of producing ethanol, a biofuel that the South American
Meanwhile, global grains trading powerhouse Cargill Inc.
opened its first Brazilian biodiesel factory next to
its soy processing plant in the Tres Lagoas municipality of Mato
Grosso do Sul in August, a $64.5 million investment.
"Biodiesel is a relatively new market, and one that is
growing in Brazil," Elcio de Angelis, Cargill's biodiesel
manager in Brazil, told Reuters. "Because its main raw material
is soybean oil, it complements our existing capabilities."
More biodiesel plants will increase demand for palm and soy
oil, support prices of those commodities, and could make Brazil
less dependent on expensive diesel imports it has long used to
transport grains and minerals across its massive territory.
$6 BILLION INDUSTRY
Biodiesel has matured into a $6 billion per year industry
since Brazil's former President Luiz Inacio Lula da Silva
encouraged family farmers to grow palm and castor plants for
fuel a decade ago to spur rural development.
State-led oil company Petrobras last month
announced a record sale of 166.7 million liters of biodiesel to
be delivered in the fourth quarter of this year.
Vale, the world's second-largest mining firm and
Brazil's biggest diesel consumer, is aiming to meet 20 percent
of its diesel needs with biodiesel derived from palm oil by
2015, using plants it is building in the Amazon rain forest.
Sixty-two biodiesel producers make about 2.4 million tonnes
of the fuel per year, 77 percent derived from soy oil, according
to Brazilian oil regulator ANP and Rabobank International.
Neighboring Argentina, the world's top exporter of both soy
oil and biodiesel, also produced 2.4 million tonnes of the fuel
in 2011 but exported 1.7 million tonnes of it.
Brazil is expected to harvest a record 81 million tonnes of
soybeans this year, surpassing U.S. production for the first
time and easing market concerns over U.S. drought losses that
pushed prices to record highs in September.
Most of Brazil's soy is shipped to China, but more may be
crushed into soy oil if biodiesel demand continues to rise.
Local industry group APROBIO said Brazil's government will
soon send legislation to Congress that would increase the
biodiesel blend requirement in diesel from 5 percent to 7
percent, the same amount required in Argentina.
The blend requirement could gradually be raised even further
in coming years, APROBIO President Julio Minelli said.
"The industry could meet a limit of 10 percent right now...
installed production capacity is 6.9 billion liters, more than
twice what is produced today," he told Reuters.
EXPORT: OPPORTUNITY AND CHALLENGES
With that increasing capacity, producers want to break into
the biodiesel export market and see opportunity in a recent
Spain put up barriers against Argentine biodiesel imports in
April, a week after Argentina said it would seize a majority
stake in energy firm YPF . APROBIO's Minelli
said Brazil could supply the Spanish market until the case is
settled at the World Trade Organization.
"It would be a foot in the door for Brazilian biodiesel in
Europe," he said.
A trader for Petrobras who declined to be named said the
company, which serves as an intermediary between biodiesel
producers and distributors, is interested in brokering sales of
the fuel to Europe but had yet to clinch such a deal.
Cargill's de Angelis agreed, and biodiesel from the
company's Tres Lagoas plant will be used internally.
"We don't see export as an option in the short term --
logistics and costs are not competitive with Argentina's
product," he said.