Overview of the physical trading sector with the focus on ...

Overview of the physicaltrading sector with the focus on Eastern European market

GREENEA5 chemin des Perrières17330 Coivert - France

T. +33 (0)5 79 97 97 50M. +33 (0)6 33 83 65 55F. +33 (0)5 46 33 86 18

[email protected]

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 brokerageservices to companies producing raw materials and tocompanies involved in producing and trading: oleo-chemicals, bioenergy and biofuels. GREENEA is firmlyrooted in many sectors, including used cooking oil, animalfats and biodiesel.

We are committed to the development and sustainability ofrenewable industries. Every day, we strive to assist ourclients in sourcing sustainable feedstock such as productsfrom the waste sector (used cooking oil, biomass, animalfats etc). Our business advantage arises from the way wework: we believe in quick responsiveness, long-establishedexperience in the industry and individual operationalapproach.

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Introduction Description of the physical trading/brokerage business1 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 mod elling, logistics, arbitrage on quality, market discrepancy…

Business origination

Prop tradingArbitrage

Business origination Sourcing and transportation of products for third parties

Proprietary trading Taking speculative positions bas ed 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 product s to make them on-spec

• Depending on cost of off-spec products

• And on blending capabilities

Geographical arbitrage Take advantage of geographica l price differences

1

2

3

1

2

3

Sources of trading revenues

Broker: illustration of the business and main advan tages 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

MarketOil Company

TraderBroker

Biodiesel orFeedstockProducer

1 1

2

1

2

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 buyersDeal structure

Why the market needs traders and brokers of biofuel s?

“ 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

7

The role of a broker is also to help to set up a li nk between people from different cultures

Incoterms: International Commercial Terms (for land t ransportation)

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)

VesselIsotank Flexibag

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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 CanadaPalm oil: the biggest producers are Indonesia and Malaysia. Becomesolid from a certain temperatureSoybean oil: the biggest producers are China, USA, Brazil andArgentinaUCO : used cooking oilTallow: rendered animal fatFAME: Biodiesel (from Fatty Acid Methyl Ester)UCOME: Biodiesel made from Used Cooking OilTME: 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 potentialchanges of legislation in every country

Malaysia, Indonesia and Argentina are the mainproducers of biodiesel but with relatively smallconsumption

Source : INRA from the Biofuels Platform, data from 2012

Biodiesel production process: feedstock and final p roducts

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 proces s

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 2-4% 0.1-0.5% 0.5-1%8-10%

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 prod ucing countriesSupply/demand overview of each local markets

Analysis of lobbying activites and potential new ma rkets

• Market is very sensitive to regulatory changes

• Pressure on feedstock prices : veg-oils,waste based feedstock, grain seeds

• Limitations in availability of raw materialand competition with other sector

• Import taxes, customs regulation

• FX market : EUR/Dollar, MYR/Dollar...

• Diesel consumption

Influences on biofuels market prices

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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

18

FinancialRisks

OperationalRisk

ReputationalRisk

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 storageTruck 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 managem ent 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 l ast 2 years:

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Conclusion 19

3

4

2

Agenda:

Section

Discussion

Conclusion: key success factors in the biodiesel tr ading 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 indicativeand gives no warranty of prices at which transactions may be affected at any time. To the maximum extent permitted by law, noresponsibility or liability for the accuracy, quality, correctness or comprehensiveness of the data will be accepted by GREENEA whetherarising from the negligence or otherwise. GREENEA shall in no circumstances be liable for economic loss or any indirect or consequentialloss or damages arising from the use of this data.

www.greenea.com

Fabien HillairetCEO, Biofuels & Feedstocks Broker+33 5 79 97 97 [email protected]

Victor AllemandouBiofuels & Feedstocks Broker+33 5 79 97 97 [email protected]

Katarzyna GołąbBiofuels & Feedstocks Broker+33 5 79 97 97 [email protected]

GREENEA5 chemin des Perrières 17330 Coivert, France

Rumunská 29 120 00 Prague - Czech Republic

Overview of the physical trading sector with the focus on ...

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