BIG SLUMP IN OIL CLAIMS BIOFUEL COMPANY
Written on the 22 January 2016 by Nick Nichols
FALLING oil prices have claimed Victorian biodiesel company Australian Renewable Fuels (ASX:ARW) which has been placed into voluntary administration.
The ASX-listed company, based at Barnawartha near Wodonga, says the crunch has come in the wake of rising feedstock prices which has impacted gross margins on the alternative fuels venture.
"The board has been conscious of the rapidly declining oil price and been monitoring closely the company' s feedstock pricing so as to ensure that appropriate trading margins were maintained," says the company in a statement to the ASX.
"Historically there has been a relatively short time lag between a reduction in the oil price and a reduction in feedstock pricing. At this time, feedstock pricing has increased and the historical long-term correlation between the barrel price of oil and the cost price of feedstock has broken down.
"This has been exacerbated by the extent of the dramatic fall in the oil price and hence our selling price for biodiesel. That contrary movement and break in the historical correlation has impacted negatively on gross margins.
AR Fuels also says the 'destabilising uncertainty' of the Federal Government's biodiesel policy 'has caused significant financial distress to the company'.
"The board and management have rigorously examined options to protect the business and provide a basis for a restart of operations if or when satisfactory gross margins return.
"These included seeking price increases from our customers, pursuing more profitable export sales opportunities to the US along with idling the production facilities and reducing all corporate activities.
"Those initiatives would have required the support of the major lenders to allow the company to retain funds and pay all outstanding trade creditors and employee entitlements."
The board says it submitted a number of proposals to its lenders with a view to continue operating, all of which were rejected.
PPB Advisory has been appointed voluntary administrators to the company.
Author: Nick Nichols