<article><p class="lead">Biodiesel and renewable diesel producers are becoming increasingly concerned about the quality of palm oil mill effluent (POME) feedstock from southeast Asia.</p><p>Some traders have put the issue down to rapidly escalating demand and prices, encouraging suppliers to top up scarce supplies with inferior product.</p><p>South Korean producer SK Eco was forced to <a href="https://direct.argusmedia.com/newsandanalysis/article/2181879">partially close</a> its 250,000 t/yr biodiesel plant because of delivery of a bad batch of the raw material.</p><p>POME values have risen by $240/t over the past six months to $800-820/t fob Malaysia, the highest since Argus began assessing this market last February. </p><p>This has partly been fuelled by sharp increases in crude palm oil (CPO) costs, which touched <a href="https://direct.argusmedia.com/newsandanalysis/article/2175140">10-year highs</a> last month on the back of <a href="https://www.argusmedia.com/blog/2020/october/7/malaysian-palm-oil-at-a-crossroads">labour shortages</a> and adverse weather because of the La Nina weather phenomenon. </p><p>Malaysian CPO stocks fell to record low of <a href="https://direct.argusmedia.com/newsandanalysis/article/2175621">1.26mn t in December</a>, the lowest since the national palm oil board began recording data in 2012, and third-month futures hit a peak of 3,888 ringgit/t ($961/t) on the fob Bursa Malaysia exchange as a result.</p><p>POME is considered an advanced feedstock under the EU renewable energy directive and so counts double towards transport fuel mandates in the region, making it increasingly sought after by blenders. A series of new renewable diesel and sustainable aviation fuel capacity coming on line in <a href="https://direct.argusmedia.com/newsandanalysis/article/2175166">Asia-Pacific</a> and <a href="https://direct.argusmedia.com/newsandanalysis/article/2188674">Europe</a> that is geared to use POME as a feedstock will only add to the number of firms fishing from a dwindling supply pool.</p><p>Some traders have cited a raft of <a href="https://direct.argusmedia.com/newsandanalysis/article/2165584">higher export duties</a> imposed on Indonesian palm oil products last year to subsidise the country's domestic 30pc renewable transport fuel mandate as a possible mitigating factor. </p><p>Export duties and levies total $248/t on CPO and $240.50/t on palm fatty acid distillate but just $35/t on POME in February, which may be incentivising suppliers to pump out off-specification material as the waste feedstock to lower costs and increase returns.</p><p class="bylines">By Amandeep Parmar</p></article>
