A shortage of used cooking oil (UCO) in Europe and falling waste biodiesel (Ucome) margins are leading waste biodiesel producers to consider plant closures in June, even as Covid-19 lockdown measures begin to ease across the continent.
The outlook for waste biodiesel producers amid European lockdowns has been somewhat better than for those producing biodiesel from virgin vegetable oils, with several outright shutdowns of major crop-based biodiesel production facilities.
But Ucome producers, many of which have scaled back output, have told Argus that they are now sold out of product for May. Given already low spreads between the end product and its feedstock, they are considering shutting in production altogether next month.
In April, reduced fuel demand in the road transport sector was somewhat balanced by low UCO collection volumes internationally — steadying Ucome and UCO prices and the strong decline in margins in March — but gains in transport fuel demand as lockdowns ease over the remainder of the first half of 2020 will outpace any increase in UCO collection.
European UCO demand was estimated by Argus at 2.5mn-3mn t in 2019 and more than 40pc of that was assumed to be met from domestic collection. Around 100,000t of UCO is collected each month from European businesses such as hotels, restaurants and households, and used for the production of Ucome.
Domestic EU UCO collection has now ground to a halt, with only minimal volumes recycled from food manufacturers and restaurants that offer takeaway or delivery services. Restaurants, bars and the hotel industry will probably be the last to reopen operations in any end of lockdown scenario. Already this week, indicative bids for UCO ex-works Netherlands (NL) — which was assessed in the mid-$770s/t (€715/t) at the end of April — are being reported at around $810/t, and are expected to further pressure biodiesel margins.
The Ucome fob ARA range to UCO ex-works NL prompt spread reached a record high of $567/t in late 2019 as demand for waste biodiesel soared prior to the end of compliance periods in EU countries. It was assessed at just $236/t on 1 May.
The Ucome fob ARA range to UCO cif ARA prompt spread was set at $323/t on 1 May, having more than halved from a record $656/t on 20 December.
EU imports of used cooking oil (UCO) from outside the bloc fell to their lowest since June 2017 in February — the latest month for which customs data is available — and were 24pc lower on the year at 95,000t. Even with some relief expected on the supply side as China — the EU's largest single source of UCO in 2019 — returns to the market, many traders are unwilling to take on the risk of large upfront payments for cargoes that take between three and six weeks to arrive in northwest Europe.
