First Biofuels Index Launched

UBS AG and Diapason Commodities Management S.A. have launched the UBS Diapason Global Biofuel Index (UBS-D GBFI) – the first commodity-based index for biological fuels. The global index covers a range of commodities used in the production of ethanol and biodiesel – the two major forms of alternative fuel – and will be published in the US, Europe, China and Japan.

The Global Biofuel Index is composed of various commodity futures, weighted to reflect the importance of each individual commodity used in the production of ethanol and biodiesel as well as the liquidity of the underlying futures. Its launch means that investors will, for the first time, have access to an efficient and liquid investment instrument that gives them exposure to the market performance of alternative fuels.

The index is based on sugar, corn and wheat on the ethanol side and rapeseed, soybeans and vegetable oils on the biofuels side.

Positive supply side factors in the agricultural markets and rising demand for biofuels encouraged the development of the index. “Historically we’ve seen very low prices in agricultural markets. There’s been a bull run in commodities that started in the late 1990s but agriculture only started to pick up at the end of 2001,” said Frederic Hervouet, global head of sales at Diapason.

Production of the two major forms of alternative fuels is increasing rapidly. “There is still a long way to go for biofuels before the sector matches the growth of this market in Brazil,” he said. “Use of biofuels in the US is low at around 1%, matching the world average. But this is forecast to rise to 5-6% in Europe and the US in less than five years,” he added.

UBS and Diapason believe that although alternative fuels will not eclipse the importance of oil in the near future, they will at least help meet the growing worldwide demand for energy as well as reduce CO2 emissions.

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