European demand for waste feedstock used cooking oil (UCO) is likely to rise in 2025, but supply could tighten with policy shifts in Asia and the US affecting global trade flows.
Sustainable aviation fuel (SAF) mandates in the EU and in the UK, which enter into force from 2025, position waste feedstocks such as UCO as crucial inputs.
Biofuels derived from food and feed crops, palm fatty acid distillate, palm and soy-derived materials, soap stock, and their derivatives, unless included in Annex IX of the EU's Renewable Energy Directive (RED), are excluded from both mandates. Biodiesel from waste-based feedstocks — UCO-based Ucome in particular — will be a key compliance option for ship owners in reaching the FuelEU Maritime mandate in 2025.
Supply uncertainties to linger
China's removal of a 13pc tax rebate on UCO exports in December has meant uncertainty about UCO supply to Europe, with expectations of resulting higher prices for Chinese products in 2025.
A good share of Chinese UCO will be retained for domestic use, particularly for production of SAF, which may offer a high-value alternative outlet and can still be exported to Europe without the application of anti-dumping duties, unlike biodiesel and hydrotreated vegetable oil (HVO).
European imports of UCO from China had already declined by around 70,000t on the year in the January-September 2024 period. This was primarily driven by the closure of arbitrage, after attacks on shipping through the Red Sea led to elevated freight costs.
UCO exports from key supplier Indonesia to Europe fell by around 36pc on the year to 89,000t in January-September due to increased domestic consumption driven by inland mandates, export duties, and domestic obligations.
There may be some relief for European buyers that look for Chinese UCO in 2025, but the outlook is murky. Trade flows shifted away from Europe in 2024 with significant amounts of Chinese UCO moving to US HVO buyers at the expense of flows elsewhere.
US buyers are waiting for clarity on the Inflation Reduction Act's carbon-intensity-based 45Z credit and this, coupled with Donald Trump's victory in the US presidential election and the potential for trade tariffs, has hit commerce on the route.
Additionally, a potential reduction in the carbon intensity of soybean oil for use in the US biofuels complex may decrease demand for Chinese UCO. This could free up supply for European buyers once more, somewhat balancing the likelihood of increased domestic UCO demand in China.
New suppliers step in
European trade with suppliers from Latin America, the Middle East and some southeast Asian countries picked up in 2024.
Imports from Chile, for example, increased fourfold in January-September 2024 compared with the same period of 2023 and should grow further now trading relationships are established.
But it is unlikely that collectively these regions can fully compensate for a decline in Chinese product. UCO imports from China and major southeast Asian markets such as Indonesia and Malaysia remain a critical component in Europe's supply-demand balance, particularly in the face of rising domestic mandates and new policy ambitions such as the most recent iteration of the Renewable Energy Directive (RED III) and aviation and maritime targets.
Tight supply and robust demand sent the Argus UCO fob ARA range spot price assessment to a more than two-year high of $1,210/t in early December 2024. Trade of cash-settled futures linked to this benchmark is tentative, with contracts changing hands out to the end of the first quarter of 2025, but market participants are more tentative into the second quarter.
