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Colombia could lead aviation fuel production

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Colombia could lead aviation fuel production

Renewable Aviation Fuels (SAF) could change not only the landscape of the global market for vegetable oils but also the production that Colombia currently has palm oil.

According to a private report from Bancolombia, with the recent successful tests on this type of fuel, the US government established a plan by 2050 to completely replace the use of aviation fossil fuels with renewable fuels.

So things, palm oil stands out as a key raw material in that country for its productionand this raises the need for the US to significantly increase the planted areas, or look for the missing raw material in the global market.

Colombia stands out in the region as the most probable provider of renewable fuels. Being the main producer of palm oil in Latin America, the country is running as the main candidate to produce SAF fuel in Latin America.



Impulse

With the recent boost given by the United States to the market for renewable fuels, and the successful tests carried out by LAN on domestic flights, everything is given for Colombia to take advantage of the opportunity and open up a new market for national palm oil.

Likewise, the European Union is increasingly demanding in raw materials free of deforestation. Some studies have shown that biodiesel from deforested areas could be more polluting than fossil fuel. This led to the EU announcing a rule in 2022, which does not yet have an implementation date, that would require that all imported palm oil come from plantations established on deforestation-free land. For Colombia, this trend can help to gain relevance in that market since, according to some studies, the impact on deforestation is minimal compared to Asian competitors and even countries like Ecuador.

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The EU is our main market and it will be necessary to invest in order to certify a deforestation-free sector. It is one thing to know and say that in Colombia it is not necessary to deforest to grow oil palm cultivation, and another thing to be able to certify it. It is for this reason that the union has been developing an important campaign in this sense, and for this very reason there has been an agreement of wills for some years where all the interested parties from the public and private sectors participate. The substantial improvement in the profitability of the sector makes this the best time to accelerate investment in sustainability and, especially, in the requirements for said certification.

Not surprisingly, inflation has been increasing the demand for local palm oil. This oil is characterized by a lower price relative to others such as soybean or sunflower. With the strong increase in international prices, and its transmission to the consumer, edible oil companies have migrated to a greater purchase of local palm oil for their blends. The impact is very positive for palm growers due to a higher average price from the Price Stabilization Fund and fewer assignments to offset sales abroad.

more crops

In response to the growth in prices, some countries increased the areas of oil crops for the 2022/23 season, with which the world supply of oils is expected to increase by 7%. Thus, international prices should fall in 2023, but analysts, on average, expect them to be around 30%-40% above 2020.

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In 2023, oil prices would remain above pre-pandemic levels. Even though it is quite complex to forecast the price of palm oil, it is possible to determine that it will hardly fall below the price of the Brent reference, which has been its floor for several years. As long as the geopolitical situation keeps oil prices high, the probability of a collapse in palm oil prices is low, for now.

According to the report, the representative market rate will continue to play in favor of the Colombian oil palm sector. The local price of palm oil is formed based on the international price and the exchange rate. With the current projections of a sustained TRM at high levels, it is expected that the prices in the local market for oil and palm fruit will remain high, at least in 2023. This implies that production costs for oil refiners and fats are going to remain high, and that there is little room for correction for the inflation of the prices of oils to the consumer.

In addition, in 2022 production could be sustained up to November with a cumulative increase of 1%. It could be thought that, in 2023, unless the effect of accumulated rains for more than two years generates sanitary complications (bud rot, among others), production should continue to increase due to a greater investment in the crop.

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