Viewpoint: Trade cases, policy drive Asian biodiesel
Singapore, 28 December (Argus) — Growth in the Asian biodiesel market in 2018 will depend largely on legislative developments and the outcomes of trade disputes with the region's two largest export markets, the EU and US.
Indonesia — the world's largest palm oil producer — is facing pushback because of the subsidies it grants to biodiesel producers, paid for by a $50/t export levy on crude palm oil. Jakarta faces a fight on several fronts as it looks to claw back global market share.
Indonesia has a high 20pc (B20) mandate for use of biodiesel in the transport fuel mix, with plans to increase this to B30 by 2020. But producers in the country are only running at around 35pc of capacity, with output at 2.5mn t/yr, because of a lack of export opportunities. Countervailing duties of 71.45-72.28pc were finalised by the US in November, while Washington is considering imposing further anti-dumping duties (ADDs) of 50.71pc on Indonesian biodiesel imports as domestic producers claim the product has been sold below fair market value.
The US was Indonesia's most lucrative export market after the EU imposed its own ADDs four years ago. US importers took 371,000t of biodiesel from Indonesia in 2016, accounting for 90pc of the country's global exports, but sales fell to almost nothing in 2017 because of the duties. Officials in Jakarta have threatened to take the US to the World Trade Organisation (WTO) over the issue, claiming that the US subsidises its own biodiesel industry and that Indonesian product has been sold at higher prices in the US than in its domestic market, and so cannot be considered to be dumped. But it will likely be months or years before the case is resolved, leaving Indonesia with near-term challenges even if it is eventually successful.
Malaysia tries to fill the gap
Any reduction of the duties would be a boon for Indonesian producers but would create a new threat for suppliers in Malaysia, the world's second largest palm oil producer. Kuala Lumpur is hoping to pick up some of the US market share that Indonesia has lost because of the levies, as it has done to some extent in the EU.
Malaysian exports to the EU were only around 40,000t in 2010 and 2011, but spiked after ADDs were implemented on Indonesia. Malaysia exported 212,000t to the EU in January-October 2017. But a lack of subsidies for its domestic producers, and lower economies of scale, leaves Malaysian biodiesel producers with higher costs than their Indonesian counterparts. As a result, companies have struggled to fill the gap left by the absence rival exporters, especially now product is again freely flowing from Argentina after the WTO ruled against EU duties on the country.
Malaysia only has a B7 domestic mandate, with capacity utilisation as low as 25pc. The government is considering an increase to B10 but is waiting for palm prices to fall to around 2,300-2,400 ringgit/t ($537-560/t) before implanting the new rules.
European trends threaten exports
Other factors that may mitigate against a rebound in southeast Asian exports to Europe. A growing backlash against palm oil, and greater interest in biofuels that provide higher greenhouse gas savings — such as Ucome made from used cooking oil — mean it is unlikely demand will return to pre-2013 levels, even if the arbitrage opens for Indonesian and Malaysian supplies.
Proposals in the EU's second Renewable Energy Directive (RED II) outline a cut to the use of crop-based biofuels in the transport mix to 3.8pc by 2030 from 7pc currently. And the European Parliament's environmental committee has recommended excluding palm oil completely from the mix from 2021, citing concerns over sustainability and deforestation.
Individual European countries such as France and Norway are in the process of trying to implement their own palm oil bans. Malaysia and Indonesia have already warned that they will take any such restrictions to the WTO, citing discrimination.
European buyers are looking increasingly to second generation biodiesel such as Ucome, which while more expensive than crop-based grades is double counted towards mandates in the EU.
Supply of Ucome and its feedstock used cooking oil is increasingly sourced from China, where the product is readily available and relatively cheap. Exports from China to the EU jumped to more than 150,000t in the first 10 months of 2017, from less than 8,000t in 2015 to 36,000t in 2016. Sales are expected to continue surging next year as more Chinese suppliers become ISCC certified, enabling them to sell into Europe, while EU buyers shift further away from crop-based grades in order to meet rising mandates.