Higher mandates and policy changes are poised to continue to support Northwest Europe HVO paper market liquidity, after a record high of 42,000t of hydrotreated vegetable oil (HVO) Class II Ice futures contracts was traded on 14 March.
HVO Class II fob ARA trading activity on the Intercontinental Exchange (Ice) rose as European fuel suppliers increasingly seek renewable diesel made from used cooking oil (UCO) to meet higher mandates and overcome the 7pc restriction for blending conventional methyl ester biodiesel into diesel.
The total traded volume for the first two weeks of March (1-14) was 120,000t, close to the previous full-month high in January of 138,000t (see chart).
The Ice contract — a cash-settled future that settles based on Argus spot price assessments — launched in 2022 as both a differential to Ice low sulphur gasoil and outright, with the former most commonly traded.
Physical HVO interest has been more measured through the beginning of 2025, although spot trade rose year on year.
Changes to key biofuels policies in Germany and the Netherlands are expected to support overall demand and anticipation of this has supported HVO paper liquidity.
Germany has paused the carryover of surplus tickets that would otherwise go towards meeting its greenhouse gas (GHG) savings quota, meaning obligated parties will have to use more physical biofuels to meet mandates, while the Netherlands has limited the amount of tickets allowed to be carried from year to year, driving a similar dynamic.
The start of the year is often a slower physical trading period in northwest Europe as market participants look to finish off compliance submissions for the previous year. Anticipating changes to ticket carryover policies, some physical biofuels were stored in tank to be used at the start of the year, particularly in Germany, suppressing prompt demand. Class II HVO has also been affected by high feedstock prices, which have pressured production margins, and strong imports from east of Suez.
Ticket values in Germany and the Netherlands have been below the equivalent cost of blending physical Class II HVO, further limiting demand. In the Dutch market HBE-IXB prices have been pressured by supply of UCO-based sustainable aviation fuel (SAF) blends, which generate 2.4 HBEs per GJ as per the biofuel portion, while German ticket prices have been affected by lower diesel demand and a focus on finishing off 2024 balances.
The prompt/front-month price spread for Class II, which gives an indication of the prompt market's strength or weakness, has been volatile for the past month according to Argus assessments (see chart). The spread flipped into contango for the first week of March following a supply surge which weighed on European prices, then returned to backwardation as HVO prices tracked UCO and UCO-based biodiesel prices higher.
Prompt UCO prices have in turn been supported by tighter global supply following a protracted export ban from Indonesia, which is still expected to be temporary, contributing to the forward curve backwardation.
HVO paper trading on 14 March focused on the upcoming three months. An April/May spread traded at $10/t ($1,055/t, $1,045/t) for 5,000t/month, or 10,000t total, a May/June spread traded at $5/t ($1,045/t, $1,040/t) for 13,000t/month, or 26,000t total, and a second quarter contract traded at $1,065/t for 2,000t/month, or 6,000t total. All of the trades were as premiums to front-month Ice gasoil.
