Weakness in the European biodiesel market should persist in 2024, as an inundation in 2023 of cargoes from China labelled as advanced — produced from feedstocks in Annex XI A of the EU Renewable Energy Directive (RED II) — continues to weigh on domestic prices. But the prospect of an EU anti-dumping investigation has raised the floor.
Despite protestations from industry bodies representing EU producers, until recently there was little to stem the flow of product that carries high greenhouse gas (GHG) savings and can be double counted, with the resulting low prices in the first half of 2023 the main factor causing a measured reduction in import volumes since. But on 20 December, the EU officially initiated an anti-dumping investigation against China-origin biodiesel, to cover the period from 1 October 2022 to 30 September 2023 and conclude within 13-14 months.
Market in waiting
According to Chinese export data, volumes of biodiesel in January-October were 17pc higher than a year earlier at 1.7mn t. Nearly all volumes flowed to the EU, with 77pc sent to the Netherlands, from where it would be redistributed in the single market.
It was not only the volume of imports but also the apparent 'advanced' classification that would dictate the level of pricing pressure. A large share arrived in the first half of the year and made its way to Germany, where premiums for advanced biodiesel eligible for double counting were higher.
The blending of these volumes generated an excess of renewable fuel tickets in the country — they are tradeable and used to meet German GHG compliance obligations. This weighed on the domestic market further and more generally in Europe.
European producers and traders claim imports have been mislabelled leading German authorities to open investigations.
But Germany is not planning policy changes until the the new Renewable Energy Directive (RED III) is implemented. The EU's deadline for the implementation of RED III is May 2025, leaving little in the way of assurance for domestic producers in the short term. They instead await any EU definitive measures and hope for better traceability assurances in the meantime as the EU's Union Database goes live in January.
The 20 December anti-dumping investigation is the EU's second into biodiesel imports instigated this year, after it launched a probe in August into Indonesian supply allegedly routed through China and the UK to circumvent anti-subsidy duties. This is due to conclude in May.
No fast relief
Low prices have led to the shutdown of waste-based biodiesel production facilities in the EU as producers struggle to maintain or recoup margins, with used cooking oil methyl ester (Ucome) premiums to underlying gasoil prices recently at multi-year lows.
The pricing outlook has also limited imports from other traditional partner countries. The arbitrage between Argentina and ARA ports — incorporating a minimum price undertaking for Argentinian producers — has been closed, restricting flows from the EU's typically largest origin of imported crop-based biodiesel.
Dutch bunker change
Contrasting with a thinning of demand for road transport biodiesel blending, marine biodiesel bunker fuel demand has strengthened.
In the Netherlands, suppliers benefit from the generation of renewable fuel tickets used to meet domestic targets prescribed to meet the EU's RED II. There, renewables blended into marine fuel generate the same tickets as road fuel blending.
The Dutch government will only allow for the blending of Annex IX A-based fuels. The tickets generated from this and known as HBE-Gs, count 0.8 times against the national transport mandate when from maritime blending, but can be double counted.
In 2024, the government will reduced this multiplier to 0.4. This comes as the country is due to raise its annual mandate from 19.9pc to 29.4pc for transport.
Based on a lower tradeable value for HBE-Gs generated from marine blending and deducted by suppliers from total sales costs, advanced biodiesel bunkering prices should rise regardless of demand for the blend components.
A wider introduction of the EU emissions trading system (ETS) for the maritime industry will begin at the same time, bolstering demand for lower emission fuels and offering some respite for the biodiesel market.
