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Bain-backed biofuels refiner ties up with China firm to source feedstock

(Reuters) - Bain Capital-backed biofuels refiner EcoCeres has tied up with a waste management firm backed by the Chinese city of Shenzhen to source feedstock, the company said on Tuesday, as it expands production of low-carbon fuels to meet fast-growing demand.

The pact between Hong Kong-based EcoCeres and Shenzhen Expressway Group, which handles more than 2.5 million metric tons of food waste annually across China, comes as local governments in China step up collection of feedstocks such as used cooking oil (UCO) to cash in on growing global trade in biodiesel and sustainable aviation fuel (SAF).

China's National Energy Administration said in September that local authorities should set up integrated, "closed loop" systems to efficiently collect waste cooking oil from restaurants, process it and refine it into low-carbon fuels - a system the city of Shanghai has had in place for a decade.

The partnership will "create a new model for feedstock procurement and provide a stable and high-quality bio-grease source," EcoCeres said in a statement.

China is the world's largest producer of UCO, with expected output of around 11.4 billion liters this year, or 10.37 million metric tons, according to the U.S. Department of Agriculture (USDA).

However, only 25% to 30% of its waste oil is currently collected, compared with about 80% in the U.S. and other developed economies, said James Tam, managing director at Bain Capital, which invested $400 million in EcoCeres this year.

Most of the waste oil collected from restaurants in China is handled by small, local companies.

While Chinese domestic demand for biofuels remains low in the absence of government mandates or subsidy programs, foreign demand for lower-carbon fuels has driven rapid growth in the trade of waste oil feedstocks from China.

In addition to its facilities in China, EcoCeres in June announced plans to build a 350,000-metric ton per year biofuel refinery in Johor, Malaysia, to meet global demand.

UCO traded at about $800 a ton in North Asia in mid-November, according to data from S&P Global Commodity Insights, after peaking at more than $1,600 per ton in May 2022.

At recent prices, the 10.37 million tons of UCO China produces annually is worth around $8.3 billion if collected and treated, according to Reuters' calculations based on USDA figures.

"People are sensing this is a commercial opportunity and building an ecosystem for collecting the oil," Tam said.

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