Ont. biodiesel firm pulls back from U.S. expansion

Facing what it sees as a "significant change" in market dynamics, the southern Ontario company billed as Canada’s biggest biodiesel producer has stepped back from expansion into the U.S. market.

Biox Corp. said Monday it will terminate its land lease deal with New Orleans-based International-Matex Tank Terminals (IMTT), set up in June to lead to construction of Biox’s planned 100 million-litre-per-year, US$60 million biodiesel production plant in New York Harbour at Bayonne, N.J.

The company said it’s "confident in the growth opportunities available to us in the market," but terminating the lease agreement now is "the responsible decision," Biox CEO Kevin Norton said in the company’s release Monday.

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Biox also said it’s still "confident in the value" of its main production plant, a 67 million-litre-per-year facility which started operating in 2007 at Hamilton, Ont., using lower-grade cooking oils, vegetable oils and animals fats for feedstock.

The Hamilton plant has been offline and 17 of its staff laid off since late October, in what the company described as a temporary suspension of operations, due to U.S. biodiesel market conditions.

Biox, Norton said, expects those market conditions "will return to a rational balance between supply and demand" and challenges in the industry in 2012 "are short-term issues that reflect the maturing of a relatively nascent sector."

Norton, in announcing Biox’s year-end results earlier this month, said the value of biodiesel "weakened significantly" during 2012 but noted "the commitment of the U.S. and Canadian policymakers to a biodiesel market that is mandated to grow remains in place."

Also, he said, Biox has an advantage in its proprietary biodiesel production process, which allows the company to use "lower-value" feedstock, such as recycled vegetable grease and animal fats, compared to conventional methods relying mostly on higher-value soybean oil.

Biox’s plan was to lease 3.5 acres within IMTT’s terminal at Bayonne, a site chosen for its status as a "major petroleum distribution hub."

The Bayonne plant was expected to be completed in December 2013, but Biox said earlier this month that the weakness in the biodiesel market had impacted the planned construction timeline.

The site was meant as part of Biox’s strategy to set up plants near large-scale petroleum storage and diesel distribution properties, and near diesel users and biodiesel blenders, so as to "minimize transportation costs to them."

Biox had already been working with IMTT for over five years, using IMTT’s Bayonne terminal as a distribution and blending site for its Hamilton product.

To cancel its lease agreement, Biox will have to eat a US$700,000 termination charge from its $2.1 million upfront payment to IMTT. Meanwhile, IMTT will return a US$4.1 million letter of credit and the $1.4 million balance from the upfront payment.

Monday’s announcement follows Biox’s Dec. 6 report of a C$14.3 million net loss on $69.5 million in sales for its fiscal year ending Sept. 30, down from an $8.66 million profit on $97.3 million in sales the previous year.

Related story:
Feds’ fund backs Hamilton biodiesel plant, Aug. 22. 2009

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