BIOFUELS Corporation yesterday said that in the absence of a "significant market recovery", an additional £10m funding could be needed to continue its operations next year.

The warning came as the Teesside green fuels manufacturer reported pre-tax losses of £8.9m in the six months to September 30, down from £30.6m at the same time last year.

The Billingham-based company, which has built the UK's largest biodiesel factory at Seal Sands, said the market has more recently been impacted by lower mineral oil prices and increased input costs.

It said current "unsustainable" margins were half of those achieved over the past year.

Due to this, Biofuels said it was only agreeing shorter term contracts, both with existing and new customers, which offer acceptable margins.

"There is no disputing that the current environment is challenging," said Biofuels chairman Michael Buzzacott.

"Until there is a market recovery, it is not in the company's interests to put in place longer term agreements."

The firm also said it had agreed with Barclays to extend its £95.17m banking facilities from the end of this month to June 30.

Mr Buzzacott said: "This will enable us to thoroughly investigate a range of options to restructure the group's current debt.

"This is welcome news notwithstanding that, in the absence of significant market recovery, the company could require additional funding from the beginning of April.

"Through the remainder of 2007, this could potentially amount to approximately £10m over and above the existing facilities."

Biofuels announced plans in October to build another two 200,000-tonne plants on its existing site and appointed Lurgi AG as technology partner to undertake the engineering design.