miércoles, abril 24, 2013

VACACIONES MAYO 2013 / GRL

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VACACIONES MAYO 2013 / GRL

Miércoles, 26 de Abril del 2013


Queridos amigos,

Les escribo para informarlos que estaré fuera de la oficina a partir del próximo lunes 29 de Abril hasta el 29 de Mayo próximo inclusive, sin acceso o con el acceso muy limitado al internet.

Por lo tanto, durante estos días no podré seguir ni leyendo ni compartiendo con Uds. directamente, o vía nuestro blog, como lo hago diariamente, los artículos seleccionados sobre los acontecimientos económicos, políticos y sociales del mundo, entre otros temas de interés común. Dios mediante, me estaré reincorporando a mis actividades normales, a partir del 30 de Mayo próximo.

Lamentablemente, desde mi última carta a Uds., política, social y económicamente, el mundo solo ha ido de mal en peor, a pesar de las apariencias. Y aun no se enfrentan los problemas estructurales importantes de fondo, pendientes desde la crisis del 2008.

Como todos han podido apreciarlo de las lecturas de los artículos que compartimos, la Reserva Federal Norteamericana ha seguido emitiendo cantidades enormes e inorgánicas de papel moneda sin respaldo, iniciando el 12 de diciembre del año pasado el llamado "QE infinity", inundando con 85 billones de dólares de liquidez mensual a los mercados financieros de riesgo, manteniendo artificialmente tasas reales de interés negativas, reduciendo los rendimientos de los instrumentos financieros de inversión de renta fija globalmente, hasta niveles tan bajos, que en opinión de algunos analistas, ni siquiera justifican el riesgo.

Al mismo tiempo, la deuda norteamericana sigue aumentando año a año, paralelamente con el déficit fiscal, por encima de un trillón de dólares anuales, alcanzando ya un total acumulado hasta la fecha de 16.8 trillones, es decir, poco más del 100% de su PNB.

Estas políticas expansionistas de los bancos centrales, entre los cuales se encuentra últimamente ahora, también el Banco Central de Japón, han "empujado" a los inversionistas, los pensionistas y a los ahorristas a buscar rendimientos reales positivos, i.e. por encima de la inflación anual, tomando riesgos más allá de su perfil natural, en busca de retornos mínimos para mantener sus necesidades de consumo y/o expectativas de rentabilidad.

Al mismo tiempo, paralelamente, los bancos centrales y los gobiernos, han tratado y tratan de manipular la psicología de los mercados, primero con declaraciones "oportunas" y "efectistas", y otras, con manipulaciones e intervenciones directas o indirectas, sobre los mercados de acciones y de los bonos de renta fija, estos últimos actualmente con intereses y rendimientos reales negativos, como ya lo mencionamos.

Y otras, tan obvias y desenfadadas, con el órgano regulador haciendo de la "vista gorda" a lo que está sucediendo en los mercados financieros, lo que ya no nos sorprende, como pasó en el famoso caso de la tasa LIBOR, en que unos cuantos bancos globales privilegiados se pusieron de acuerdo ilegalmente para beneficiarse, sin ninguna consecuencia, y también en la última caída inexplicable en picada del precio del oro, el único dinero real.

Esta caída del precio del oro, lo repito, es inexplicable de una manera convincente por razones fundamentales y/o técnicas, aunque entre los analistas existen diversas explicaciones e interpretaciones sobre sus causas, que no se pueden descartar y que pueden haber contribuido directa o indirectamente, de alguna manera.

Sin embargo, nosotros tenemos nuestra propia interpretación de fondo.

En palabras del legendario banquero e inversionista J.P.Morgan, "Solo el oro es dinero. Todo lo demás es deuda".

El oro metal compite como moneda de reserva, con los papeles moneda de reserva de los países desarrollados, principalmente, con el dólar, especialmente en épocas turbulentas como la actual, donde todos los bancos centrales están emitiendo papel moneda sin limitación alguna y sin el respaldo de un crecimiento proporcional de su PNB, devaluando el valor de sus monedas sin control e inspirando la desconfianza de los mercados.

Contradictoriamente, el precio del oro cae, justo después del anuncio del enorme esfuerzo de emisión sin precedentes del Banco Central del Japón, dirigido principalmente a lograr el mismo objetivo en el que la Reserva Federal ha estado embarcada infructuosamente en los últimos años, reiniciar el crecimiento económico real y salir de la deflación en la que su economía se encuentra sumergida desde hace más de 20 años, recurriendo a la ahora usual "maquinita”, por un monto equivalente al 15% de su producto nacional bruto,según los analistas, y produciendo la inmediata devaluación del yen.

En mi concepto, este esfuerzo manipulador sin precedentes del precio del oro a la baja, está dirigido esencialmente a evitar que el creciente sentimiento de desconfianza sobre el dólar y otros papel moneda, se entronice en el mercado.

Ya que como vemos, los bancos centrales siguen "imprimiendo" papel moneda sin un respaldo económico equivalente en el crecimiento del PNB y sus monedas se encuentran en un proceso de devaluación acelerada, en medio de deudas crecientes y probablemente impagables. Lo que están tratando de lograr los manipuladores, es evitar que esta realidad se arraigue en la percepción y la conciencia de los mercados, lo que traería sin dudas, la debacle del sistema financiero y económico internacional actual y un nuevo orden mundial.

Por otro lado, como consecuencia de todas estas emisiones inorgánicas y sin respaldo, los precios de los activos financieros globales están distorsionados, inflados artificialmente, inclusive en los mercados emergentes.

En el caso de la bolsa de acciones en USA, donde existe lo que los analistas llaman en inglés "The Great Disconnect" (La Gran Desconexión) las acciones han alcanzado nuevos niveles record de precios, pero la economía está creciendo lentamente, muy por debajo de lo programado y las utilidades de las empresas, salvo excepciones, no muestran una mejora, lo que desdice la racionalidad de este aumento inexplicable de los precios de las acciones en la bolsa norteamericana a niveles record por razones fundamentales... a no ser por las inyecciones de papel moneda sin respaldo, las tasas de interés negativas y la manipulación de los mercados.

Europa aún no reacciona ni encuentra el rumbo, sumida en el proceso hacia una recesión mas profunda y a punto de reventar en pedazos, a pesar de las declaraciones en contra. Por lo menos, hasta las próximas elecciones en Alemania, luego de las cuales, no me extrañaría ver al Banco Central Europeo, sumarse al carnaval de las emisiones monetarias, con el objeto de dilatar los ajustes, en la medida de lo posible. Pero esto último, aún está por verse.

China, después de la crisis del 2008, realizó la emisión de papel moneda sin respaldo record, donde algunos analistas especulan fue equivalente hasta el 25% de su producto nacional bruto. Enorme. En buena parte, como consecuencia de ello, el crecimiento económico futuro sostenible de la China está ahora sujeto a dudas, especulaciones y críticas de los analistas. Todas razonables.

Según las proyecciones del último reporte del FMI, el crecimiento estimado global este año y el próximo, se reducirá aún más. El FMI nos explica que existe una clasificación de la economía global de "tres velocidades". Los que decrecen, como Europa, los que crecen lentamente como USA y los que aun crecen, relativamente rápidamente, como China y otros países emergentes, a pesar de que sus proyecciones oficiales de 7.5% se encuentran muy por debajo del 10 o 12 % de solo hace unos pocos años.

Es decir, a pesar de las enormes inyecciones keynesianas de papel moneda sin respaldo de los bancos centrales del mundo desde el 2008, especialmente la Reserva Federal Norteamericana y la China, con el objeto de evitar la profunda crisis y la quiebra del sistema financiero internacional, que luego continuaran para tratar de reiniciar un crecimiento económico real, auto sostenido y disminuir el alto desempleo, solo tuvieron éxito al principio, evitando la crisis y la quiebra del sistema temporalmente, pero ahora han fracasado por completo en el objetivo de reiniciar el crecimiento económico y disminuir el desempleo significativamente.

No solo no han logrado su objetivo, sino que además, en el camino, estos países tampoco han hecho los ajustes estructurales, sino por el contrario, han seguido endeudándose hasta llegar a niveles cada vez más insostenibles, distorsionando todos los precios relativos de la economía global e induciendo a una utilización y distribución ineficiente de los recursos económicos y financieros.

Ahora, además, la situación se ve agravada por cada vez mayores desigualdades sociales y la consecuente inestabilidad política y social. Así, algunos analistas estiman que el 95% de los beneficios económicos de los últimos 5 años, han ido a parar a las manos de solo el 5% de la población, es decir, a las elites en el poder, poniendo en tela de juicio la sobrevivencia del pacto social, no solo en USA, sino en general, en todos los países del mundo, tornando sumamente peligrosa e inestable la situación política global.

Si los bancos centrales del mundo siguen emitiendo papel moneda sin respaldo y sin límite, es imposible pronosticar hasta cuándo se puede mantener esta situación sin que los mercados reaccionen negativamente a esta fase especulativa, manejada y manipulada desde los grandes centros financieros y políticos del mundo. Ni tampoco cuando exactamente, es que los mercados perderán finalmente la confianza en las monedas de turno, sino la han perdido aún, como parece. O hasta donde podemos sobrevivir sin una crisis existencial, con mercados manipulados.

Pero sin duda el momento llegará, tarde o temprano. "There is no free lunch", como dicen los norteamericanos. Esta última inexplicable caída manipulada del oro papel (ETF´s), mientras que al mismo tiempo, paralelamente se vendían cantidades record de oro y plata de metal físico, no es una buena señal definitivamente.

Por lo que podemos deducir de todo lo anterior, no creemos que el regreso al equilibrio de la economía global será de una manera inteligente, coherente y programada, con costos asequibles que nos aseguren y garanticen la sobrevivencia de nuestras sociedades y sistemas políticos actuales.

Por el contrario, las clases políticas, o están perdidas, o no se atreven a enfrentar los problemas estructurales de fondo y a tomar las cada vez más costosas medidas de ajuste, prefiriendo resolver los problemas transitoria y artificialmente, inflando los precios de los mercados y "pateando la lata" de la solución y el ajuste estructural hacia adelante en el futuro, profundizando los desequilibrios ya existentes, con consecuencias cada vez más negativas y cada vez más imprevisibles.

Todo esto, sin mencionar aún, los más de 700 trillones de dólares norteamericanos que se calcula existe en productos derivados indocumentados en los mercados financieros. Un poco más de 10 veces el producto bruto mundial, que se estima alrededor de 60 trillones de dólares. Ni tampoco, los llamados "unfunded liabilities" en USA, es decir, los déficits de los fondos de pensiones y del seguro social, con lo cual la deuda norteamericana se calcula que se elevaría hasta alrededor de 60 o 70 trillones de dólares (algunos analistas hablan hasta de 100 trillones de dólares), niveles insostenibles.

Más bien, por ello, lamentablemente, creemos que el regreso al equilibrio y a la realidad de la economía global, se realizará de forma abrupta, sorpresiva, desordenada e imposible de pronosticar en el tiempo, pero igualmente inevitable, altamente caótica y sumamente dolorosa, en medio de grandes volatilidades, propias de un sistema que se mira en el espejo de su extinción y lucha desesperadamente por su sobrevivencia.

En un entorno tan complicado de fin de ciclo, los inversionistas y los ahorristas, tienen que estar conscientes de todo ello. Hay que ser muy prudentes y al mismo tiempo, no dejarse llevar por las emociones, tomando decisiones equivocadas y apresuradas, por causa de volatilidades transitorias e inevitables de los precios de los activos financieros a corto plazo. Mantener la calma y revisar y reafirmar los principios y fundamentos que sustentan una estrategia de inversión inteligente de un patrimonio financiero familiar a mediano y a largo plazo, es el mejor consejo. 

Como por ejemplo, es el caso reciente de la corrección del precio del oro, en donde desde mi punto particular de vista, los fundamentos de inversión a mediano y largo plazo no han cambiado, sino muy por el contrario, se han consolidado, a pesar de la reciente caída importante en su precio. Y aunque además, por lo ya explicado, nadie pueda asegurar que no habrá una caída mayor en el corto plazo.

Ahora viene la temporada del verano en el Norte y los mercados entran en una especie de somnolencia anual. “Sell in May and go away”, reza el dicho de Wall Street. Aunque este año podría aplicarse al mes de Abril. Y dadas las circunstancias, aún esto puede ser impredecible.

A mi regreso, retomaremos el curso de los acontecimientos y analizaremos lo que paso en el intermedio.

Con mis mejores deseos y afectuosos saludos, me despido de Uds., con un cordial abrazo,

Gonzalo


Lending in the Dark

Andrew Sheng, Xiao Geng

22 April 2013

 This illustration is by Paul Lachine and comes from <a href="http://www.newsart.com">NewsArt.com</a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.


HONG KONGThe proliferation of China’s opaque, loosely regulated (or unregulated) shadow-banking system has been raising fears of possible financial instability. But just how extensive – and how risky – is shadow banking in China?
 
According to the China Banking Regulatory Commission, shadow banking (all credit not regulated by the same standards as conventional bank loans) increased from ¥800 billion ($130 billion) in 2008 to ¥7.6 trillion in 2012 (roughly 14.6% of GDP). Total off-balance-sheet banking activity in Chinacomposed of credits to property developers (30-40%), local-government entities (20-30%), and small and medium-size enterprises (SMEs), individuals, and bridge-loan borrowers – was estimated to be as high as ¥17 trillion in 2012, roughly one-third of GDP.
 
The termshadow bankinggained prominence during the subprime mortgage crisis in the United States to account for non-bank assets in the capital market, such as money-market funds, asset-backed securities, and leveraged derivative products, usually funded by investment banks and large institutional investors. In 2007, the volume of shadow-banking transactions in the US exceeded that of conventional banking assets.
 
The Financial Stability Board has estimated that total global shadow-banking assets in 2011 amounted to $67 trillion, with the US accounting for $23 trillion, the eurozone for $22 trillion, and the United Kingdom for $9 trillion. Chinese shadow banking totals only about $2.2 trillion.
 
Shadow banking in China is dominated by lending to higher-risk borrowers, such as local governments, property developers, and SMEs. It is ultimately funded through retail bank deposits, banks’ wealth-management products, and private equity. Thus, the real issue in China is not the volume of shadow credit, but its quality, and the banking system’s capacity to absorb potential losses.
 
Market forces and policy conflicts triggered shadow banking’s emergence in China. With the People’s Bank of China (PBOC) keeping interest rates artificially low, retail depositors began taking advantage of higher rates of return offered by local governments, property developers, and SMEs, which needed funding to maintain investment and adjust to a new market environment.
 
Since 2008, shadow banking has exploded, owing to price and regulatory factors. In an environment dominated by direct quantitative controls, such as increasingly stringent lending quotas, shadow banking is meeting genuine market demand, with the interest rates that borrowers are willing to pay providing a useful price-discovery mechanism. China simply needs a better system for evaluating the quality of such credits (and for providing depositors with returns that can offset inflation).
 
Chinese policymakers should view the shadow-banking scare as a market-driven opportunity to transform the banking system into an efficient, balanced, inclusive, and productive engine of growth.
 
They should begin by reforming the property-rights regime to enable market forces to balance the supply and demand of savings and investments in a manner that maintains credit discipline and transparency.
 
This requires, first and foremost, determining who – the investor or the bankbears the underlying default risk of high-yield wealth-management products. Given that this is a legal question of contract definition and enforcement, it should be answered in the courts or arbitration tribunals, not by regulators. Clarifying ultimate responsibility for credit quality and risk would also reduce intermediation costs by eliminating the need to resort to informal channels, such as credit-guarantee and trust companies.
 
Furthermore, reducing local-government financing vehicles’ exposures is essential. China needs to build its municipal bond market to generate more sustainable funding for infrastructure projects. Local governments could then privatize the massive assets that they have accumulated during years of rapid growth, using the proceeds to pay down their debt.
 
Reform efforts should be supported by measures – such as strict enforcement of balance-sheet transparency requirements – to improve risk management. In fact, the existing shadow-banking risks are manageable, given relatively robust GDP growth and strong macroeconomic fundamentals. At the end of 2012, China’s commercial banks held ¥6.4 trillion in core capital and ¥1.5 trillion in non-performing-loan provisions, for a risk cushion of roughly ¥8 trillion.
 
Low-risk central-government bonds and central-bank reserve requirements most of which are backed by substantial foreign-exchange reservesaccount for ¥31 trillion of the ¥95 trillion in total commercial-bank assets. Another ¥8 trillion are housing mortgages, which also carry little risk, given low loan-to-value ratios. Exposure to domestic sovereign obligations – by state-owned enterprises and local governmentsaccounts for about ¥32 trillion, and obligations by private firms amount to roughly ¥24 trillion.
 
This breakdown suggests that the ¥8 trillion cushion would be sufficient to offset potential losses arising from higher-risk credit in China’s commercial banking sector. The high interest-rate margins set by the PBOC provide additional support.
 
But, if more risk builds up through continued expansion of shadow credit, this risk buffer may become inadequate. Thus, Chinese policymakers must focus on curbing the shadow-banking sector’s growth, while ensuring that all current and future risks stemming from the system are laid bare. The introduction of measures to cool the property market, and new direct regulatory controls over shadow-banking credit, represent a step in the right direction.
 
Perhaps the biggest challenges facing China are raising real returns on financial liabilities (deposits and wealth-management products) and promoting more balanced lending. Increased costs for investment in real assets would help to rein in property prices and reduce over-capacity in infrastructure and manufacturing.
 
Ultimately, addressing shadow banking in China will require mechanisms that clearly define, allocate, and adjudicate financial risks among the key players. This includes ensuring that borrowers are accountable and that their liabilities are transparent; deleveraging municipal debt through asset sales and more transparent financing; and shifting the burden of resolving property-rights disputes from regulators to arbitrators and, eventually, to the judiciary. Such institutional reforms would go a long way toward eliminating default (or bailout) risk and creating a market-oriented financial system of balanced incentives that supports growth and innovation.



Andrew Sheng, President of the Fung Global Institute, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an adjunct professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.

Xiao Geng is Director of Research at the Fung Global Institute.


April 22, 2013 6:30 pm

 
Commodities: Against the grain
 
Ethanol was hailed as the super-fuel to end US dependency on imports, but demand has stalled
 
The modern corn harvest around Orange City now involves the mass collection and production of corn for the use of ethanol fuel©Eyevine

Each petrol pump has a dual identity at Neal Hoff’s convenience store. One side bears the familiar shield logo of Phillips 66, the oil refiner. The other side, which dispenses petrol mixed with 15 per cent or more ethanol, carries a bright red warning: “Not a Phillips 66 Fuel Product.”

Mr Hoff’s store, in Lexington, Nebraska, is two miles from a refinery that turns the local corn crop into ethanol. So he leapt at the chance to sell more of it.

Phillips 66 did not. Like the rest of the oil industry, it believes too much ethanol can harm car engines and demanded the warning labels.

 
 
“The underlying reason is it hurts their gasoline sales,” Mr Hoff says.

World biofuel production is stagnating. The stand-off evident in Nebraska is a big reason why.
In the US, which produces 60 per cent of the world’s ethanol, optimistic mandates emanating from Washington are crashing into a post-financial crisis reality of weak petrol demand and emptier roads.

The breakneck rise of ethanol and biodiesel in the previous decade transformed the behaviour of commodities, yoking energy markets in London and New York to Chicago’s agricultural futures pits.

It also sowed tensions between rich countries and poorer food importers hit by grain price spikes in 2007-08, 2011 and 2012 as rich nations forged ahead with policies that, in the words of Bill Lapp, a former ConAgra Foods chief economist, “mandated burning of our food”.

The US is not the only country where biofuels have stalled. Ethanol pioneer Brazil’s production peaked in 2010. Europe is meanwhile pondering a limit on grain-based ethanol use. Global biofuel output is “certainly flattening”, says Christoph Berg of consultancy FO Licht, an authority on the sector. “The engine is spluttering, to say the least.”

After years of double-digit increases, world ethanol production fell in 2011 and 2012 and – excluding Brazil – will probably shrink again this year, according to FO Licht. The smaller biodiesel market expanded by 1 per cent last year.

The US is the biofuel engine’s main combustion chamber. Washington will be crucial in determining whether it regains momentum. Without policy changes, some analysts see a range of dire outcomes from higher petrol prices to a global vegetable oil supply squeeze. The oil and renewable fuels industries, two of the most powerful lobbies in America, are battling over the best way to avert these scenarios.

Supporters of the US biofuels mandate saw it as a step towards energy independence and away from petroleum. Since then, the shale oil boom has knocked US crude oil imports to a 15-year low, while greens are alarmed over how much sensitive land has been ploughed and planted with corn.

Environmentalists liked it, agricultural interests clearly supported it and there was a security issue with self-sufficiency,” says Greg Page, chief executive of Cargill, the US-based agribusiness. Now, “the environmentalists have left, and the whole issue of the US’s energy exposure to imports is being diminished. So it’s going to be a single-issue constituency that supports it.”

The story is entwined with the US economic bust. In December 2007 Congress enacted the Energy Independence and Security Act. The law dictated steep rises in the amounts of biofuel sold at petrol stations, from 9bn gallons in 2008 to 16.55bn gallons this year and 36bn gallons in 2022.
 
The Renewable Fuel Standard showered money on corn belt states such as Nebraska. Ethanol plants owned by companies such as Archer Daniels Midland, Koch Industries, Poet and Valero Energy raised their corn consumption from 2.1bn to 5bn bushels between 2006 and 2011. Corn prices doubled. Farm income broke records.

The US was already in recession when Congress passed EISA and nine months later would be plunged into the worst financial crisis since the Great Depression. US gasoline demand has not recovered since. This year the Energy Information Administration projects drivers will pump 133bn gallons 6 per cent below the peak of 2007. But the mandate requires annual rises in ethanol use irrespective of demand.

Petrol stations could meet the mandate by adding more ethanol to each gallon. But the oil industry refuses to blend more than 10 per cent, roughly 13bn gallons. Mr Hoff’s is one of only 23 US locations to sell the “E15ethanol blend years after the Environmental Protection Agency approved its use in vehicles made after 2000.

Jeff Lautt, chief executive of ethanol producer Poet, says: “People like to say that we’ve got this ethanol mandate. In reality, what we have in this country is a 90 per cent gasoline mandate. We’re trying to get access to 15 per cent of the gasoline gallon, but ultimately we’d like to have access to 100 per cent of that gallon and let the consumers choose. For the first time in the history of this country we’re creating a viable alternative to gasoline, and that’s good for consumers.”
..


Consumers are not exactly clamouring for etanol, however. AAA, the motoring organisation, recommended suspending sales of E15 as many drivers are unaware it is not appropriate for every vehicle. At Mr Hoff’s store, in the heart of a county where farmers usually grow 180 bushels of corn per acre, pure gasoline is by far the biggest seller despite costing most at the pump. The volume of E15 purchased is “a little under 100 gallons per day, he says. “We can produce the amount required under the RFS. But the RFS is not a production standard. It’s a consumption standard. It’s not possible to consume the required quantities,” says Mr Berg.

In the absence of more ethanol blending, fuel companies can straddle the gap between mandated and actual biofuel sales by purchasing credits known as Renewable Identification Numbers, or RINs. Exploding RIN markets show the dramatic impact of US biofuel policy crashing into the reality of the petrol market.

A RIN is issued alongside each gallon of ethanol or biodiesel as it is produced. Oil refiners and petroleum product importers unable to meet their biofuel obligations can instead purchase a RIN in the secondary market to comply with the law.

With the blending obligation rising but petrol consumption static, a virtual panic over a shortage of credits has driven RIN prices from five cents to more than 90 cents. While the value of the credits is dependent on government policy, the costs are real. Valero, the biggest independent oil refiner as well as an ethanol producer, warned analysts of $500m-$750m in RIN costs this year. At CHS, a farmer co-operative with oil refineries, RIN expenses have trebled from a year ago.

Allegations are flying. Mike Jennings, chief executive of oil refiner HollyFrontier, last month said the RIN market had become a “casino” for commodity brokers and hedge funds. Bob Dinneen, long-time chief of the Renewable Fuels Association, told reporters, “oil companies are trading these RINs among themselves” in a “cynical and sophomoric effort to fuel hysteria” over the Renewable Fuel Standard. A consultant hired by the American Petroleum Institute lobby forecast petrol and diesel costs would rise 30 per cent by 2015 as oil companies scramble for scarce credits.

In a potentially perverse turn, the slowdown in demand for corn-based ethanol could even have the effect of straining supplies of vegetable oil and animal fats, the main source for biodiesel used in trucks, according to economists at the University of Illinois. As stocks of ethanol RINs are depleted and petrol demand wavers, fuel companies may be forced to meet the mandate with biodiesel instead.

“In 2015, the United States would need to use every gallon of fats and oils in the production of biodiesel to meet the mandate, with tremendous pressures on vegetable oil and fats prices around the world,” says Scott Irwin, University of Illinois agricultural marketing chairman. He recommends freezing the mandate at 2013 levels for the next two years.

Even the Renewable Fuels Association has acknowledged that some elements of the fuels mandate it champions will be unachievable, at least until E15 wins acceptance. In comments filed this month, the lobby recommended that the EPA for the first time cut the overall mandate to account for unpredictable imports from Brazil, whose sugarcane-based fuel is one source of “advancedbiofuels that is not distilled from corn.

Companies with a stake in biofuels say higher RIN prices are a critical lever to push recalcitrant oil companies towards their product. In the old industrial city of Newark, New Jersey, entrepreneurs formed a company called Grease Lightning in 2010 to collect used cooking oil for sale to biodiesel refineries. Its smudged steel tank trucks, adorned with lightning bolts, now tap bars, cafeterias, hospitals and restaurants including Manhattan’s Russian Tea Room for raw material.

“In the grand scheme of the biodiesel world we are sort of the frontier drillers, pulling oil out of the ground and shipping it out to refineries,” says Jamie Hutson, director of business development.

Biofuels are also coming under attack in Europe, source of 41 per cent of the world’s biodiesel and 5 per cent of its ethanol, according to FO Licht. Draft legislation in Brussels would cap the share of food crop-based biofuel to 5 per cent of total transport fuel consumption amid concerns planting crops for fuel is undermining greenhouse gas goals.

Rob Vierhout, secretary-general of ePure, the European ethanol industry group, says: “We have seen the big growth. It is now plateauing. The curve is less steep. Maybe it will pick up again, but certainly not the same big numbers we had seen in the past. All the big projects have been built.” New investments will probably be in commercially unprovensecond-generationbiofuels made from sources such as wood or straw, he believes.

. . .
 
The rise of biofuels has already tied together previously disjointed commodity markets. In a recent paper Fernando Avalos, senior economist at the Bank for International Settlements in Basel, found the relationship between crop and oil prices strengthened after the US Renewable Fuel Standard was established in the mid-2000s. “The RFS seems to have changed the plumbing that connect oil and crop prices,” he said at the International Monetary Fund last month.

Biofuels may be slowing but they are not in retreat. The oil industry depends on ethanol to boost petrol octane and improve car exhaust, indicating its love-hate relationship with the biofuels industry will persist. The US Department of Agriculture projects biofuel production in the big world markets will rise 30-40 per cent between 2013 and 2022, although “at a slower pace than in recent years” as expansion depends on biofuels policies that are now under attack.

Others are less sanguine. “There has been a deceleration, if not complete stagnation or decline” in biofuels, says Abdolreza Abbassian, senior economist at the UN Food and Agriculture Organisation in Rome. “Unless the prices of feedstocks were to go down sharply, and oil prices went through the roof, I really do not see a significant upturn in ethanol production.”


Sugarcane: Brazil throws a lifeline to producers


Sugarcane producers in São Paulo, the epicentre of the industry in Brazil, which is the world’s biggest exporter of the commodity, have been looking keenly at the skies.

Heavy rains were delaying what was expected to be one of the biggest harvests in recent times, projected by Bloomberg New Energy Finance at between 580m and 600m tonnes of crushed cane compared with last year’s 532m tonnes.

Last week the weather cleared, the mills cranked up and the “crushbegan.
 
“Under optimum conditions where you get a super good harvest, a big crush and high sugar throughput, then hydrous and anhydrous ethanol production is set to rise,” says Harry Boyle, analyst with BNEF.

Brazilian analysts predict a large part of this harvest is bound for the country’sflex-fuel motors – its fleet of cars that can run either on petrol blended with anhydrous ethanol (biofuel with negligible water content) or using only hydrous ethanol (fuel with 3-4 per cent water content).

Part of the reason for this is that Brazil is set to increase the ethanol blend in fuel from 20 per cent to 25 per cent from May 1 – and has announced tax cuts on the biofuel to throw a lifeline to struggling producers.

“The harvest this year compared with last year is going to favour ethanol production,” says Antonio de Padua Rodrigues of Unica, the Brazilian sugarcane industry association.

The industry has been struggling to compete in recent years partly because of a government policy of keeping petrol prices low at the pump as an instrument to suppress inflation.

Petrobras, Brazil’s state-owned oil producer, has been importing part of the nation’s petrol needs and selling it at below international prices, hurting not only its own profits but also those of the ethanol industry.

The other aspect favouring ethanol this year is weaker sugar prices, which will push producers to convert more of the results of their cane output towards biofuel production.

In terms of exports, much will depend on the debate raging in the US, but Mr Rodrigues predicted this year that they would remain constant at about 3bn litres.

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Copyright The Financial Times Limited 2013.