Asian biodiesel producers are eyeing potential openings in an European market beset by tightening supplies and record-high prices, although they may struggle to capitalise fully on the opportunity.
Surging vegetable oil costs have battered margins and reduced production in Europe, while a steep backwardation on these raw materials — with prompt prices at a premium to forward values — is deterring them from adjusting their output higher.
Rapeseed oil prices are hovering around highs of just under $1,200/t fob Dutch mills, sending RED Fame 0 values up by $140/t since 19 April to an all-time record $1,458-1,468/t fob Amsterdam-Rotterdam-Antwerp (ARA) yesterday. This is despite Covid-19 lockdowns having depressed demand.
Consumption is now returning as movement restrictions are gradually lifted and a potential shortfall of supplies from Argentina threatens to restrict availability further. Obstacles in Argentina have cut off methanol supplies to soybean methyl ester (SME) manufacturers this month. Although they have now been lifted, they could still impede them fulfilling 300,000t worth of contracts to the EU in May and June, tipping the supply-demand balance further.
Buyers' requirements will depend on how big their exposure to the potential 300,000t SME shortfall is. But palm methyl ester (PME) producers in in Malaysia are sensing an opportunity to step in, particularly with the peak European summer season approaching for their high cold filter plugging point grades.
Current offers from Malaysia are around $1,200/t fob, working out to a landed price in the ARA of approximately $1,380/t, including freight and a 6.5pc EU import duty.
But European customers will hold off from any non-essential purchases for as long as necessary, given record-high prompt prices and a $53/t backwardation yesterday on RED Fame 0 swaps from May to June.
PME producers also have little excess product ready in storage to take swift advantage of the opportunity, having run at low rates for similar reasons to their European counterparts and the arbitrage being closed.
Crude palm oil futures on the fob Bursa Malaysia exchange hit 13-year highs last month with worker shortages and bad weather. They are still hovering close to these levels, opening at 4,471 ringgit/t ($1,089/t) for May today, while being sharply backwardated by $117/t over the front three months as output is expected to rebound.
This increases the cost of holding on to product and discouraging manufacturers from making any excess volumes. Once deals have been signed some plants are able to produce around 10,000t of biodiesel in around 10 days, depending on feedstock availability.
Time would then be running out to produce and release volumes, as they will need to load by the first half of May to cover the spot months up to the end of the second quarter.
"The story of buying hand-to-mouth what's necessary remains the theme with the high absolute prices," according to one trader.
