European UCO buyers wary of contaminated imports

European used cooking oil (UCO) buyers are urging collectors in Asia-Pacific and South America to exercise caution to prevent product contamination.

Last week, authorities in Spain ordered increased auditing for any biodiesel imported to or used in the country. A broker said EU customs authorities are tightening checks on UCO imports because of product being mixed with either pure animal fats or palm oil.

While there are no suggestions that this is a problem with all suppliers, some buyers in the Amsterdam-Rotterdam-Antwerp (ARA) region have refused isotanks, a widely used method of transporting UCO, because they failed to meet specifications and were reclassified as animal waste. Some traders disputed that animal fats are being blended with UCO, as it is more expensive and would affect the required specifications.

Waste grades such as UCO are double counted towards European biodiesel mandates and so are more sought after and command a higher price, a system that many participants see as open to abuse.

"Double counting is clearly creating a distortion and the price differential is so big. It is like an incentive to fraud," according to a buyer. Ucome prices have averaged a $445/t premium over single-counting vegetable oil-based Fame 0 biodiesel in northwest Europe since the start of the year. This is a sharp disparity with UCO methyl ester (Ucome), currently selling at an outright $1,030-1,050/t fob China. PME is trading out of Malaysia at an outright $720-770/t.

Collectors are being asked to enhance traceability to the point of origin to avoid potential contamination, which can cause clogging or technical problems when run through biodiesel plants, and some buyers have requested extra testing before purchasing to ensure specifications match the order. With Covid-19 lockdowns having slashed global UCO collections, and with demand from biodiesel and hydrotreated vegetable oil (HVO) producers rising as they try to secure double-counting feedstocks to meet higher European mandates, some buyers are branching out into unfamiliar territory to source feedstocks away from their regular vendors.

"In terms of quality, the most important issue is who buyers will buy from. I see them tired of being burnt," said a trader.

The market consensus is that Spain's move was a step in the right direction, but there remains a lot of work to do. The industry is wary in the wake of Dutch biodiesel producer Kampen's bankruptcy last year, after it was found guilty of money laundering and forging biotickets in its domestic market.

The main biodiesel International Sustainability and Carbon Certification (ISCC) body started cracking down on non-compliant firms last year after the Kampen case emerged. The European Commission is considering tighter auditing and has mandated its own traceability scheme, but questions remain about how effective the proposed enhanced protocols and more comprehensive databases will be without more auditing done on the ground.

"Only-paperwork will not prevent fraud, but tracing all the way back to small outlets is not realistic, so it is a dilemma," said a Chinese trader. Tracing feedstock all the way to the source, which often means independent restaurants in remote areas, will incur increased costs and manpower. Pandemic restrictions have hampered the auditing process, with EU-based inspectors unable to travel to Asia-Pacific to ensure compliance.

The ISCC has rejected this, saying that while there has been some difficulty it has co-operation agreements with 30 international certification bodies with trained domestic auditors, limiting the need for travel from Europe. Remote surveillance audits are allowed by the European Commission until the end of July, conditional on a physical audit as soon as restrictions are lifted.

"Given the ridiculous price premium, I guess the temptation to cheat is always there," said a source at the ISCC. "If the trading community can be more vigilant, it will help a lot. Wishful thinking. More tempting to expect ISCC to do the policing."

By Amandeep Parmar, Leonidas Kanonis and Lauren Moffitt