New index charts biofuels prices By Kevin Morrison Published: February 7 2006 23:02 | Last updated: February 7 2006 23:02
The world’s first index of biofuels prices has been launched as interest in alternative energy sources continues to rise.
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After US President George W Bush last week endorsed alternative energy sources in his State of the Union speech, the new biofuels index will aim to capture the increasing prices for commodities used in the production of ethanol and biodiesel, such as sugar, corn, wheat, rice, rapeseed and canola.
It will be run by UBS and Diapason, the Swiss-based, commodity-focused fund management group.
Frederic Hervouet, global head of sales at Diapason, said there was increased investor and political focus on seeking alternative fuels to offset high oil prices. There was also rising demand for cleaner fuels due to concern about rising carbon dioxide emissions.
“The consumption of biofuels is set to grow strongly as more countries introduce legislation to encourage the consumption of ethanol and biodiesel,” said Mr Hervouet.
The European Union has set a target that biofuels should make up 5.75 per cent of transport fuel consumption by the end of 2010. The production and consumption of biofuels globally is largely supported by tax breaks and other financial support schemes. This fiscal assistance has financed the growth in global ethanol production from zero in the mid-1970s to 30,000m litres in 2004.
In turn, this has changed the dynamics of the sugar industry as the commodity is increasingly valued as an energy source.
A rising amount of sugar is used for producing ethanol. Nevertheless, global biofuels account for less than 1 per cent of the 84m barrels a day of oil the world consumes.
Raw sugar futures on the New York Board of Trade reached a 25-year high last week of $19.73 a pound, capping a doubling of the price since last June. The price has been fuelled by large inflows of investment money.
The Nybot raw sugar contract will be included in the new index, along with the Chicago Board of Trade wheat, corn and rough rice futures contracts, the Winnipeg canola futures contract and the rapeseed contract traded on Euronext.Liffe.
Although the other agricultural commodity prices have not seen gains anywhere near those experienced by sugar, Mr Hervouet said there was scope for rises in the future as more ethanol plants were built in North America to process grains and in turn boost biofuel consumption.
