China Clean Energy Halts Biodiesel Production

China Clean Energy's (CCGY.OB) press statement Thursday:

(A)s of March 2008 it had temporarily halted production of biodiesel and is now shifting its focus to higher value added specialty chemicals in an effort to mitigate a dramatic recent spike in the costs for raw material coupled with stagnant wholesale diesel pricing.

Commencing in February 2008, the price of yellow grease, cotton seed waste and rape seed waste feedstock, the principal raw materials used to produce the Company's biodiesel product, increased to over $500 per ton compared to an average of $368 per ton in the fourth quarter of 2007. In contrast, diesel wholesale prices, which are set by the Chinese government, have remained at approximately $700 per ton, rendering it impossible for the Company to currently generate profits from its biodiesel operations.

This is a huge blow as the company has been touting its new biodiesel plant as its crown jewel. If the biodiesel business is no longer viable, what is so clean about China Clean Energy? Isn't that its raison d'etre, the reason it raised $15 million earlier this year to expand its biodiesel capacity from 10,000 to 110,000 ton? What now?

The company appears to be saying that it can use the new capacity for production of specialty chemicals. But the fact is, that is not a compelling business proposition. Didn't investors go into CCGY because of the exciting potential of biodiesel? Do we really want to invest in a company which produces such chemicals as dimer acid, hot melt adhesives, and such, in effect, going from backing a would-be leading biodiesel producer to an also-ran manufacturer of slow-growth industrial chemicals? I don't think so.

My Position: None.

Comments

[JREwing]

About time folks stop that biofuel travesty!

[AmesTiedeman]

Willie Nelson is a believer.

[NumbersGuy]

I suspect it would still make business sense if they could get a fair price for the diesel. $700 per ton comes out to about $2.40 per gallon (293 gallons per ton). If they could get something closer to US diesel prices ($3.50 before you add the $1 per gallon credit which is a travesty of another sort), they'd probably still have a business.

[nickgogerty]

LNG is also subject to price controls.

[frontier]

what dose ccgy.ob have to do with gu. NOTHING and yet gu is down on this article.