"The biodiesel industry has been the largest consumer of rapeseed in Germany for the past two years or so but it is in a crisis and no one really knows what is going to happen to our largest user," one rapeseed trader said.
HAMBURG (Reuters) - Uncertainty about the future of Germany's huge biodiesel industry slowed trade in the country's rapeseed market this week, traders said on Thursday.
"The biodiesel industry has been the largest consumer of rapeseed in Germany for the past two years or so but it is in a crisis and no one really knows what is going to happen to our largest user," one rapeseed trader said.
"If biodiesel production stays low demand for rapeseed will also fall."
Germany's biodiesel industry is only producing at about 10 percent of capacity largely because a biofuels tax increase on Jan 1 hugely cut sales, the head of the German renewable fuels industry association BBK said on Tuesday
!ADVERTISEMENT!German biodiesel is largely produced from rapeseed oil.
Green fuel producers say the extra tax means biodiesel is now the same price or even more expensive than fossil diesel.
"The rapeseed market is waiting to see what happens to the biodiesel industry which surely cannot survive for long producing at this level," one trader said. "The likely impact on prices is hard to judge, but a reduction in demand must have an effect."
"With soybean prices in the U.S. so strong it is unlikely that rapeseed prices will fall, but it is possible they will not rise in such close conjunction with soybeans as they have in the past."
Some farmers were said to be reluctant sellers, hoping the dramatic rise in Chicago soybeans seen since early December will continue.
"The small volume of sales offers on the physical market means crushing mills have been more active buyers on the Paris futures market this week," one trader said. "Many seem to have pretty good supply cover anyway."
Demand for food vegetable oils appears to be holding up despite recent price rises, traders said.
"Housewives will still buy a bottle of cooking fat if the price goes up to 1.50 euros from 1.25 euros but truckers will not buy biodiesel unless it is cheaper than fossil diesel as their vehicles burn more," a trader said.
The market shrugged off the first official estimate earlier this week that German rapeseed plantings for harvesting in summer 2008 have fallen 8.4 percent on the year.
"There is so much that can happen weather-wise until the harvest and a fall of this size had been generally expected," one trader said. "Last year more was planted but bad weather meant about the same was harvested."
"Assuming normal yields the plantings would mean a 2008 German rapeseed crop of about 5.3 million tonnes, the same as in 2007."
"The unanswered question is where is it all going to go if the biodiesel industry closes down," the trader said.
(Reporting by Michael Hogan; Editing by Peter Blackburn)
