07/05/2010 (Gerson Lehrman Group) - Following Vale's steps, Petrobras, the Brazilian oil company, will invest in the production of biodiesel based on palm oil. The goal: supply the European biofuel market in 2014 and onwards. This is good news - for everyone.

Vale, the iron ore giant, made the first move by announcing 50 million gallons of"palmdiesel", biodiesel from palm oil, by 2014.  60.000 hectares planted , 300.000 tons of CPO. Petrobras has announced the same numbers this week. The partnership with GALP, the portuguese energy group, will give Petrobras the access to the Iberian market.

Implications are clear. It makes palmdiesel an emerging contender to compete with soy and rapeseed. This will have positive impacts on overall price competitiveness of biodiesel five years from now. The current european crisis will have spillover effects for the next ten years - so we will have to see how it will affect regulation on biofuels and its adoption across EC. One thing is for sure - all these biodiesel plants under construction in european ports, and those built in the last few years, will need to be used. In Brazil, it gives strong impulse to the palm oil value chain - from plantation to oil logistics, and gives also better, productive use of devastated areas in Para state. Vale and Petrobras projects could finally unlock the environmental agenda in brazilian congress regarding the use of land in the Amazon, opening the way to a revision of the 50-50 law. It puts also the country in the forefront of palm oil in the Americas, together with Colombia, which has a more mature and professional palm oil sector. By 2014, Brazil should reach 0,5 million hectares of planted area, potentially equivalent to a production of 2,5 million tons of crude palm oil - still not relevant compared to Malaysia and Indonesia, but not bad if we consider it's historical 100.000 hectares level.