Chinese biodiesel producers are running at low rates, or even shutting completely, as the impact of the Covid-19 outbreak cripples demand from the main European market.
Coronavirus lockdowns have put the brakes on transport fuel demand. So suppliers faced with negative margins are either shutting plants, and taking the opportunity to run maintenance, or scaling back production to prevent storage overflow.
A couple of producers with 5,000-7,000 t/month export capacity have closed for up to a month already, while another reduced output to 300 t/d from 900-1,000 t/d. None have an idea when they will resume at full operations, with much depending on when shutdown orders lift and European demand recovers.
Another manufacturer with around 5,000 t/month export output said it is still able to run at capacity after renting an onshore tank to catch the overspill. It currently has around 13,000m³ (11,500t) of space available or nearly 2½ months' production. But even while it can continue producing product, the prices at which it could currently sell lie far below outlays.
Used cooking oil (UCO) supplies are tight as China is still recovering from its Covid-19 outbreak, with the feedstock possibly being diverted towards animal feed in China, despite it being a legal grey area to do so. This is keeping prices high and eating into UCO methyl ester (Ucome) producer margins. But values of vegetable oils that are traditionally used as animal feed slumped by $50/t, tracking the sharp drop in crude prices this week, which could remove some of the future UCO price support.
The breakeven price for Ucome producers given current UCO and production costs is approaching $900/t. But best bids are languishing at around $835/t fob China, as European prices scrape 11-month lows of $1,010/t fob Amsterdam-Rotterdam-Antwerp.
Some manufacturers have taken to using gutter oil to make ends meet, as it is nearly $100/t cheaper than UCO. Once production costs and charges are considered, breakeven prices of the finished product work out to around $800/t. But even at this level sellers are finding cargoes difficult to offload and largely not worth their while.
China exported nearly 130,000t of biodiesel during January-February, up from 45,000t for the same period a year earlier.
