Following a year in which the difference in prompt physical value between the two key crop-based biodiesel benchmarks in Europe reached record highs, changes to the biodiesel blend Fame 0°C CFPP fob ARA range assessment methodology that exclude palm oil as a feedstock could narrow its price spread with rapeseed OME (RME), which traditionally holds a premium given its superior cold weather specifications.
The RME/Fame 0 spread hit a record high of $888/t on 19 July at a time of year when seasonal demand would usually flatten the price difference between the grades.
There is no suggestion from the market that the spread between the two grades will reach close to parity in 2023 as has happened in several summers since the assessments were launched in 2011. This is because an Argus change in April 2022 to mandate the delivery of rapeseed oil proof of sustainability (PoS) with RME spot trade moved away from the previously mass balanced standard that allowed for PoS from other feedstocks. The decision followed domestic legislation in Europe that banned the use of palm oil for biofuels.
But now the exclusion of palm proof of sustainability (PoS) paperwork will support volumes of Fame 0 barges offered with RSO PoS given limited alternatives such as soybean oil. Because of a large 2022-23 marketing year rapeseed crop in the EU, there should be greater availability of RSO PoS on traders' books.
The exclusion of palm oil from Fame 0 will increase demand for PoS from crop sources that deliver physical biodiesel with a lower cold filter plugging point (CFPP) comparatively. While palm-based biodiesel (PME) has a CFPP of 15°C, soy biodiesel (SME) is at -4°C, sunflower biodiesel at a similar level and RME usable in much colder weather at -13°C or lower.
This should mean more physical product carries a lower CFPP more generally, aligning the specification of Fame 0 more closely with grades favoured for winter blending despite its 0° CFPP on paper.
"Which PoS will you use to deliver Fame 0? At some point Fame 0 will [have] a CFPP of [at least] -3°C," a European trader told Argus.
In the second half of 2022, several of those in the northwest European spot market suggested most of the Fame 0 traded on Argus Open Markets (AOM) carried soy PoS as imported SME from Argentina and stored in northwest Europe was sold into the prompt market. Volumes of the benchmark product from 1 August to the end of November totalled 403,000t.
But year-round imports of SME from Argentinian producers are limited by EU anti-subsidy duties and a minimum import price.
In terms of palm-based biodiesel and the corresponding PoS documentation, this will continue to find its way into European markets that allow for palm-based biofuels under their respective legislation. Specifically, this will be Spain and countries in eastern Europe such as Poland with the product sold at a stronger discount to spot Fame 0.
