CHINA INTEGRATED ENERGY

All around the world, biodiesel is a challenging business with high capital costs, cyclical gross margins and returns on capital. There are limited barriers to entry as production processes to make biodiesel are well understood and can be accomplished by specialty chemical plants of all sizes.

Feedstocks – which can either be food crops, oils from non-edible crops, vegetable oil waste or even used cooking oil – are subject to cost inflation and potential uses in alternative specialty chemical production. For all these reasons, to the best of our knowledge, there are essentially no successful publicly traded biodiesel producers capable of growing sustained equity value.

However, there appears to be a magical place called Shaanxi Province in China where the economics of the biodiesel business are different from everywhere else in the world. In Shaanxi, one biodiesel producer has reportedly been able to produce biodiesel at ever-increasing volumes with eerily consistent 30% gross margins irrespective of market-driven diesel and feedstock prices. This can apparently also be accomplished at extremely low levels of capital investment.

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