MARKET DEVELOPMENT
Palm oil wrangle hits biofuel company
Palm oil wrangle hits biofuel company
13/7/07 Guardian Unlimited) - Shares in Renewable Power and Light, a UK-listed company that aims to generate electricity from palm oil, crashed today after the company warned it expected to make a loss for the full year.
Shares in company were suspended on Aim, the junior market, last week after it said its main supplier had warned it would not be able to deliver palm oil at the agreed price. When trading resumed today the shares slumped 66% or 77.75p to 38.75p, cutting the company's market capitalisation to £37m.
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RPL, which has two plants in the US set up to burn palm oil refined into biodiesel, said it had started legal action against the supplier, Safari Group Inc, and had obtained a temporary injunction preventing Safari from supplying palm oil to anyone else. RPL said it was "demanding specific performance of the contract and/or substantial damages".
World palm oil prices have soared over the past 18 months partly driven by increased demand for biofuel, hitting a peak in June. Though they have since fallen back they remain 70% higher than at the beginning of 2006. Palm oil is used in cooking and the production of lipstick as well as for producing biodiesel.
The company, which said today it had $50m (£25m) in the bank, is looking at how speed up plans to use other feedstocks or acquire its own palm oil supplies. It is generating some revenues from burning natural gas at its plants in Massena and Elmwood Park in the north-eastern United States but said the delay in switching to biodiesel fired generation meant it expected to make a loss for the financial year. It had been forecast to make of profit of $25m for 2007.
Chief executive David Lewis said: "While the situation with Safari is clearly a disappointing setback to achieving our shorter term objectives, we remain dedicated to delivering renewable power and generating attractive returns for our shareholders." The company retained a "robust" financial position and would continue to push measures to ensure long term supplies of feed stock. It was looking at a number of opportunities and had recruited an executive to oversee management of new feedstock resources.
Analysts at Ambrian Research warned that RPL's problems could have wider implications for the industry. "Biofuels producers will need to read the small print to see if suppliers can default on deliveries due to the rapid rise in feedstock prices.
"Caution on the sector has to be the watchword at the moment."
Shares in company were suspended on Aim, the junior market, last week after it said its main supplier had warned it would not be able to deliver palm oil at the agreed price. When trading resumed today the shares slumped 66% or 77.75p to 38.75p, cutting the company's market capitalisation to £37m.
Article continues
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RPL, which has two plants in the US set up to burn palm oil refined into biodiesel, said it had started legal action against the supplier, Safari Group Inc, and had obtained a temporary injunction preventing Safari from supplying palm oil to anyone else. RPL said it was "demanding specific performance of the contract and/or substantial damages".
World palm oil prices have soared over the past 18 months partly driven by increased demand for biofuel, hitting a peak in June. Though they have since fallen back they remain 70% higher than at the beginning of 2006. Palm oil is used in cooking and the production of lipstick as well as for producing biodiesel.
The company, which said today it had $50m (£25m) in the bank, is looking at how speed up plans to use other feedstocks or acquire its own palm oil supplies. It is generating some revenues from burning natural gas at its plants in Massena and Elmwood Park in the north-eastern United States but said the delay in switching to biodiesel fired generation meant it expected to make a loss for the financial year. It had been forecast to make of profit of $25m for 2007.
Chief executive David Lewis said: "While the situation with Safari is clearly a disappointing setback to achieving our shorter term objectives, we remain dedicated to delivering renewable power and generating attractive returns for our shareholders." The company retained a "robust" financial position and would continue to push measures to ensure long term supplies of feed stock. It was looking at a number of opportunities and had recruited an executive to oversee management of new feedstock resources.
Analysts at Ambrian Research warned that RPL's problems could have wider implications for the industry. "Biofuels producers will need to read the small print to see if suppliers can default on deliveries due to the rapid rise in feedstock prices.
"Caution on the sector has to be the watchword at the moment."