Refinery Conversions17 Jun 2022 00:51
A question for the board from a new member in the states. Are there a lot of refinery’s converting in Europe from running crude to renewable feedstocks? There are 15 to 20 refineries in the states that are converting from crude inputs to tallow, used cooking oil and seed oils to produce renewable diesel and jet fuel. I am involved with one of those conversions. There are limited quantities of tallow and used cooking oil available so seed oils will be the bulk of the inputs. Due to the volumes involved this will cause a sea change in demand. For example, Philips and Marathon both just had northern CA refinery conversions approved and when up and running in 2023 each will require 50000 bpd of seed oil. That’s 750 million gallons each of seed oil per year inputs, and we have many other conversions underway. Also, the days of soybean, rapeseed, sunflower, palm oil etc all having separate pricing are going to be gone. They are all going to more or less parity. We are agnostic which seed oil we will run, it’s simply a function of what’s available at least cost. So, soybean which currently sells at a 300 ton premium over palm is going to largely disappear. Due to the demand change coming in the seed oil space that is going to extend decades and be very supportive of pricing, I am interested in the palm oil space as it’s the most efficient seed oil to produce and hence the question regarding if there are Euro refinery conversions that are going to add fuel to the upcoming oil seed fire. Looking at the players, I like Okomu due to the lack of government interference but in the states we are precluded from buying on the Nigerian exchange. Same holds true in Jakarta and the dozen or so mid size plantations that trade there which is too bad as many are attractive. I think something like Sarawak Oil Palms is attractive if you can buy it. In the states we can buy the listed ones in Singapore and Bumitama seems well run, attractively priced and has good volume. Closer to home SIPEF trading in Brussels looks okay but thinly traded. In the UK, personally REA’s balance sheets is just too much of a train wreck for my palate but I can appreciate the comments here about the leverage that implies. MPE has a great balance of shareholder friendly, valuation and trading volume. AEP is just mispriced. At 1 times earnings net of cash, and having 50k undeveloped ha when Indonesia hasn’t granted any more land to plantations in three years, its valuation is a small fraction of every other oil palm listed company but has been mentioned here it’s probably the least shareholder friendly and it’s anybody guess if or when that ever changes. In any event, with the upcoming demand shock and the supportive effect it will have on pricing, you can probably do well with any oil palm company over the coming decades. There may just be a second coming of glory days of the oil palm companies 15 plus years ago when they all sold at PE’s north of 20.