Plentiful rapeseed supply and a backdrop of economic woes will keep a lid on rapeseed oil (RSO) prices heading into 2023, although there are bullish factors such as increased demand from China and strong RME margins. For waste feedstocks, competition for used cooking oil (UCO) looks likely to intensify.
Rapeseed output in key producing countries Australia and Canada is forecast to rise sharply in the 2022-23 crop year, meaning global supply should more than meet increased demand from China and the US and leave European stocks relatively unaffected.
The higher US demand stems from the Environmental Protection Agency's (EPA) decision in early December to allow renewable diesel and jet fuel made from canola oil to generate compliance credits under the Renewable Fuel Standard (RFS). This will probably be met by domestic supplies and by higher imports from Canada, but European suppliers could step in if demand outweighs North American supply. Some European crushers are already looking to get their plants ISCC certified to be able to supply the North American market.
Rapeseed movement between Europe and major vegetable oil consumer China picked up towards the end of 2022, and this is likely to continue into 2023 because flows from Australia to China are unlikely.
In Europe, the biofuels industry will act as the main driver for RSO prices in the next half of the marketing year given the food sector is covered by long-term contracts. RSO demand should pick up in the second half of January, as production margins are good enough to encourage output. Upcoming bans of or caps on palm and soybean oil (SBO) in key biofuel markets such as Germany and Belgium will steer demand further towards RSO.
With more demand stemming from hydrotreated vegetable oil (HVO) and sustainable aviation fuel (SAF) producers, particularly from Asia-Pacific in 2023, UCO supply will tighten as the battle for waste feedstocks intensifies. European biodiesel and HVO producers acquired UCO for the fourth quarter early this year, which stifled trade towards the end of 2022. The dip in demand, paired with backwardation in the Ucome market and high energy and production costs, kept something of a ceiling on UCO prices as the calendar year ended. But demand will probably pick back up sharply after January.
The outcome of intra-EU negotiations will again affect the biodiesel and broader biofuels sector in 2023.
The European Biodiesel Board (EBB) lobbied for EU legislators to broaden the list of feedstocks accepted for SAF producers — to accommodate growing demand from the sector linked to new mandates — but this looks unlikely, which will limit UCO availability. If legislators decide to cut other advanced feedstocks from the SAF pool, it will further exacerbate competition for UCO. Some of this will be offset by the removal of brown grease from part A of Annex IX of the EU's renewable energy directive (RED II) and its placement under part B, alongside UCO and animal fats, but not a significant amount.
The European Commission does plan to add a range of other non-feed crops to Part A, but commercial amounts of feedstock from these sources are yet to materialise and it is unclear what would be permitted.
Steady UCO imports will be essential from China and southeast Asia to maintain Europe's supply and demand balance. European imports from these countries have consistently increased year on year alongside higher mandates, but generally, prices and competition will rise because of increasing biodiesel output in Asia-Pacific and the US and rising mandates in South Korea and Indonesia.
