Extent of strain on EU Ucome production laid bare: Argus production margins workspace
While this represents a significant improvement for margins since mid-March, when these input values were only $3/t below the total value of sales, production facility costs vary, largely driven by their age and the nature of long-term supply agreements, as well as overheads.
Major Ucome producers continue to cite negative margins, albeit at varying degrees. Accordingly, multiple assets have been shut down, and those still operating are often doing so at significantly reduced rates.
Soft diesel prices reflect weak European demand
An industrial slowdown impacting European diesel demand appears to be the key driver of the normalisation of diesel prices this year, after extreme highs in refining margins and in the futures curve in 2022.
EU diesel and gasoil imports have slowed at the same time as prices have fallen, suggesting both have been under pressure from the demand side, rather than from strong import availability. Lower imports were expected after the bloc banned Russian product imports on 5 February —prices were expected to rise to prohibitively high levels. Instead, it appears demand has been so weak that both imports and prices have fallen.
Some traders suggest a gradual structural trend in Europe is also playing some part in suppressing diesel demand. Gasoline’s share of road fuel consumption has been increasing at diesel’s expense for years. But the key driver has been weak industrial activity in most of Europe's large economies.
EU biofuel sector calls for measures on Chinese exports
Concern in Europe about rising Chinese exports of ‘advanced biofuels’ led International Sustainability and Carbon Certification (ISCC) to carry integrity audits at processing units in China and Singapore. Much of the incoming volumes have been for Germany, where they count twice towards emissions savings targets in transport. This double counting limits physical demand for other types of biodiesel, including Ucome, which has in recent years been the primary source of high greenhouse gas (GHG)-savings waste-based biofuel in Europe.
European biodiesel associations have called on the EU to introduce new measures on certification, as stronger Chinese biodiesel exports weigh on markets. In a letter to European Commission climate commissioner Frans Timmermans, European waste-based and advanced biofuels association Ewaba said market practices in some exporting countries, China in particular, are challenging EU policies and practices.
The association said that 11 plants run by its members have already ceased output and a further 10 are operating below normal levels and are considering short-term stoppages.
Those representing the Chinese biodiesel sector have responded that domestic producers are able to process lower-quality waste oils into biodiesel, meeting European biodiesel standard EN14214, often using feeds incompatible with European plants.
China’s biodiesel exports fell by 17pc to 178,000t in April from 215,000t in March, but were still well up on the year. Exports in January-February more than doubled on the year to 455,000t, with the vast majority destined for Europe.
Still, with imports falling and a slowdown in production in Europe, expectations of thinner supply have supported a marginal recovery in Ucome prices. This has led buyers in markets that have usually blended a majority share of the biodiesel grade to bid for volumes for delivery in the third and fourth quarters of 2023 — driven by uncertainty about the outcome of policy discussions prompted by the recent rise in imports.
Traded volumes of Ucome fob ARA range on Argus Open Markets (AOM) reached 58,000t in May, more than double the 26,000t in May 2022 and the highest in 11 months. At the same time, trade of Ucome cash-settled futures on the Ice exchange hit record levels, at 4,463 lots in May.
Author Tom Hughes
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Argus Waste-based Biodiesel Production Margins Workspace brings together a range of feedstock, energy and product price data for quick, reliable analysis of the cost of used cooking oil methyl ester (Ucome) production.
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• Feedstocks, including UCO and methanol
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