Stricter biofuel mandates in northwest Europe may push hydrotreated vegetable oil (HVO) consumption to record highs in 2026, as suppliers shift away from conventional biodiesel to meet EU targets. In Germany alone, demand could rise by 1.5mn t — nearly quadruple 2025 levels — according to Argus Consulting.
To bypass the 7pc cap on blending conventional methyl ester biodiesel into diesel, suppliers are turning to HVO Class II, boosting trading on the Intercontinental Exchange (Ice) ahead of rising renewables targets next year.
A total of 717,500t of used cooking oil-based HVO (Class II) futures traded on Ice in June, up from 140,100t in May and surpassing the previous record of 232,000t in March.
The Ice contract — cash-settled and based on Argus spot assessments — launched in 2022 as both a differential to Ice low-sulphur gasoil and outright, with the differential more actively traded. Open interest now extends to June 2026. December positions total 99,000t, close to the 109,000t held in the more liquid Ice Ucome biodiesel contract, Ice data show.
Since 20 June, the forward curve has remained in contango, peaking in the fourth quarter. This reflects expectations of rising demand ahead of 2026, when biofuels targets increase in key markets such as the Netherlands and Germany, which are adopting greenhouse gas (GHG) reduction-based mandates. Both recently published draft legislation to transpose the EU's revised Renewable Energy Directive (RED III), proposing to abolish double-counting of Annex IX feedstocks.
Obligated parties will need a broader fuel mix to meet higher targets, supporting waste-based HVO demand.
Spot market activity has also picked up. Argus Open Markets (AOM) volumes for HVO Class II have reached 36,000t so far in 2025, nearly matching the 2024 total of 44,000t. Trades of palm oil mill effluent-based HVO (Class IV) have hit 22,000t, already exceeding last year's 16,000t.
The increase in spot demand has been supported by changes to renewable fuel ticket carryover rules. The Netherlands cut its allowance from 25pc to 10pc for 2025 compliance, reducing flexibility for obligated blenders and prompting more near-term buying.
Strong demand and tight supply pushed HVO Class II premiums to a seven-month high in June, peaking at $1,095/m³ on 20 June and holding firm into July.
In April, Germany's federal agriculture and food office (BLE) suspended an HVO producer's access to the Nabisy biomass registry and froze Proof of Sustainability (PoS) documents during an investigation. These documents are required to log fuels on compliance platforms and count them towards RED targets. Prices rose following the suspension and remained supported even after the PoS documents were reinstated under the "protection of confidence" principle, as delays and reduced supply continued.
Trade flows have also been reshaped by EU anti-dumping duties imposed in February on Chinese biodiesel and HVO. Just 95,000t of HVO arrived at the Amsterdam-Rotterdam-Antwerp (ARA) hub in the second quarter, down from 155,000t a year earlier, according to Kpler data. Arbitrage for standard 5,000t parcels has largely disappeared for Chinese producers facing duties of 21.7pc or more, although flows remain viable for exporters subject to the reduced 10pc rate.
Anti-dumping and anti-subsidy duties are already in place for HVO and biodiesel of US and Canadian origin. While US-origin HVO flows to the UK remain unaffected — EU duties were removed in 2022 — the UK launched an anti-dumping investigation into US HVO in March..
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