Tight supply pushed waste-based biofuel feedstock spot prices in northwest Europe to a two-year high this month, despite a squeeze on margins for producers of hydrotreated vegetable oil and used cooking oil methyl ester (Ucome).
Used cooking oil (UCO) fob ARA prices have held firm since late 2024, averaging $1,203.92/t so far this year and peaking at $1,250/t on 24 March, the highest level since 10 October 2022.
A key driver has been the seasonal shift to blending biodiesel with a higher cold filter plugging point (CFPP), including Ucome, as the warmer months approach. This has contributed to increased demand for UCO from Ucome producers, providing additional price support for the waste feedstock over vegetable oils.
China could reinforce its position as the largest supplier of UCO to Europe this year. Although Chinese UCO exports to the EU dropped by 40,000t last year as volumes were redirected to the US, this year uncertainty surrounding the US 45Z tax credit guidance and higher US tariffs on Chinese goods have weakened US demand for Chinese UCO, putting downward pressure on Chinese EPA-compliant prices.
This could reopen the arbitrage for Chinese product to Europe, which was closed in 2024 after attacks on shipping through the Red Sea led to elevated freight costs. That said, renewed tensions in the Red Sea are weighing on freight costs again. And market participants also point out that Chinese UCO heading to the US would generally have a higher free fatty acids content than European specifications, so if volumes are redirected to Europe they would likely require treatment.
Furthermore, China's cancellation of a 13pc export tax rebate on UCO has made exports less competitive and has limited availability. And a weakening macroeconomic backdrop in China could lead to a reduction in UCO supply.
Meanwhile in the European market, UCO collection rates slowed seasonally in February and March, also reducing spot market availability.
Palm oil impact
UCO prices have also had indirect support from strong palm oil values. Although Bursa Malaysia crude palm oil (CPO) futures have softened from previous weeks, they remain relatively high.
Palm oil, which is widely used as a cooking oil in Asian markets, plays a key role in UCO pricing. Additionally, reduced availability of CPO from Indonesia, as a result of the country's B40 mandate for palm oil-based biodiesel, is putting pressure on the supply of waste feedstock.
Indonesia's trade ministry announced a pause on new export permits for UCO, palm oil mill effluent (Pome) and high acid palm oil residue (Hapor) at the start of the year, which is limiting supply for the global market. There is also a growing trend of UCO volumes staying within Asia, reflecting high transport costs and rising demand from biodiesel producers in Singapore.
The Indonesian export restrictions have helped drive the Pome oil cif ARA price to around $1,178/t so far this year, up from $926.67/t in the same period of 2024, while the Malaysian Pome oil price surged to a multi-year high of $1,030/t on 24 January as buyers have sought Malaysia-origin material to replace the loss in Indonesian supply. The Malaysian Pome price stayed around the $1,030/t mark during February and March, supported by tight domestic supply and lower CPO production because of excessive rainfall and flooding in eastern Malaysia.
On 25 March, Pome oil fob Malaysia rose by $45/t to $1,075/t, surpassing CPO prices, driven by firmer demand from HVO producers and continued supply constraints. This has prompted European producers to try and find cheaper alternative sources of Pome oil in west Africa and Latin America, but volumes from these regions are unlikely to be sufficient to replace Indonesian and Malaysian supply, keeping the market tight.
