<article><p class="lead">Record-high prices for used cooking oil (UCO) in Europe have piled pressure on production margins for Ucome biodiesel in the last couple of months, just as demand for road fuels across the continent falters under the weight of tightened lockdown restrictions. </p><p>The <i>Argus </i>UCO cif ARA quote hit a record $885/t in December last year and has since climbed a further $130/t to reach $1,015/t yesterday, the highest since <i>Argus</i> began assessing UCO on a cif ARA basis in February 2018. Inland values for UCO in Europe have also tracked imported prices higher, with the UCO ex-works Netherlands quote hitting €920/t ($1,109/t) on 22 January, the highest since <i>Argus</i> began assessing on this basis in August 2019.</p><p>China is typically Europe's predominant supplier of UCO but a consistent lack of available containers — which can be traced back to <a href="https://direct.argusmedia.com/newsandanalysis/article/2164695">late last year</a> — has closed the flexitank arbitrage from China to European ports, causing prices to steadily climb since November. Freight rates for flexitanks on a cif ARA basis were reported as high as $225/t in the past week, but a lack of activity may push container costs lower in the coming weeks. With the Chinese New Year holiday period beginning, market participants do not expect offers from China to resurface until the middle of February at the earliest. </p><p>Lockdown restrictions reintroduced throughout Europe towards the end of last year have generally been tightened since January, resulting in a large proportion of the hospitality sector being shut down and reduced UCO collection throughout the region. This, coupled with a lack of available product from Asia, means Ucome producers in Europe are relying more heavily on suppliers in South America, north Africa and the Middle East. </p><p>The rise in UCO prices has put pressure on European Ucome production margins, with the spread between Ucome and UCO cif ARA narrowing to an average of $380/t in January, from $457/t in December and $586/t in January 2020. Ucome producers in the EU generally look at a spread of approximately $430-450/t as a workable margin. While the UCO cif ARA price gained around $80/t over the course of January, the prompt Ucome outright value increased by only $4/t in the same period, averaging $1,362/t, down from $1,438/t a year earlier. </p><p>Liquidity for the waste biodiesel grade decreased significantly last month, with 23,000t traded on <i>Argus</i> Open Markets (AOM) in January, compared with 37,000t in December and 29,000t in January 2020. Most Ucome volumes sold at the end of last year and early this year were produced using UCO that was purchased before the hike in the feedstock's price. The rising costs and unworkable margins have prompted several EU Ucome producers to consider reducing or even halting production once they have fulfilled existing contracts. </p><p>Hydrotreated vegetable oil (HVO) and biojet producers are still able to secure healthy enough margins with UCO prices at current levels. Even so, liquidity in the ARA HVO market was thin last month as producers, faced with rising feedstock costs, are unable to reduce offers while buyers are unwilling to pay above the value of Dutch and German tickets for Class II HVO produced from UCO and palm oil mill effluent (POME). The values of Dutch and German tickets often set a cap for HVO in key markets.</p><p class="bylines">By Daniel Mackay and Giulia Squadrin</p></article>
