SYDNEY (July 25 2006): Australian canola exports are swinging away from China to Europe to feed powerful demand for renewable fuels such as biodiesel and ethanol, traders told Reuters on Monday.

The Chinese are increasingly finding themselves priced out the market as strong demand from Europe, together with the drought conditions which have hit Australia's canola crop in the past two years, drive sharp price increases.

"There is big demand, it's a huge growth industry in Europe and a lot of the price support for Australian canola is a result of the increased biofuel demand coming out of Europe," one Australian trader said.

Some demand is also coming from Australia's fledgling biofuel industry. Global Ethanol Holdings Ltd last week filed a prospectus seeking to raise US $350 million in an initial public offering.

Two weeks earlier, Australian Biodiesel Group Ltd announced it was starting up Australia's largest biodiesel facility, near Brisbane, to produce up to 160 million litres of fuel a year from canola oil. A spokesman for the company told Reuters the canola would be blended with tallow, the main feedstock, but tonnage demand was not presently fixed.

The exact mix of feedstock would depend on price, with Australian biofuel producers also using imported palm oil and recycled vegetable oils, an Australian Oilseeds Federation official told Reuters. "It's already having quite an impact on our industry," the federation official said of demand for biofuel. "But more out of Europe than Australia. The European biodiesel industry has taken most of our seed exports this year," the official said.

Australia's top traditional market, Japan, has also been a steady buyer of Australian canola this year, although purchases may soften slightly from the normal 400,000-500,000 tonnes because of high prices, traders said.