Perfect storm squeezes fob ARA RME/Fame 0

The prompt price spread between Argus fob ARA range benchmark biodiesel grades rapeseed oil methyl ester (RME) and fatty acid methyl ester (Fame 0) has narrowed significantly in the second quarter of this year — leaving the assessments priced at parity on 16-18 June.

RME has a -13°C cold filter plugging point (CFPP), which is preferable for winter blending and commands a premium. But prior to this year and since mid-2018, the winter grade has priced well above Fame 0 throughout the year.

The spread has averaged just $9.03/t in June so far, compared with $92.63/t on 1-22 June 2020 and $121.53/t in the same time period in 2019. It has averaged $61.86/t this year to date, compared with $129.19/t from 1 January-22 June 2020 and $132.24/t over the same period in 2019.

In those years, the RME summer premium to the Fame 0 blend had been supported by competitive imports of soy- or palm-based biodiesel. EU biodiesel anti-dumping duties (ADDs) against Argentinian and Indonesian biodiesel producers were revoked in March 2018, with imported volumes subsequently blended into Fame 0 in northwest Europe, weighing on its price.

Minimum price undertakings on Argentinian biodiesel producers came into force in February 2019, allowing major producers to export to the EU without paying newly imposed anti-subsidy duties (ASDs). But ASDs on imports from Indonesia were imposed at the end of 2019, a move that has seen a reduction in palm-based biodiesel arrivals. Europe's imports of Indonesian biodiesel dropped to 137,400t in 2020, falling by 83pc on the year.

In recent weeks, participants have suggested that a lack of high-CFPP product — typically palm-based biodiesel PME — in the spot market has lessened the need to blend RME to hit a 0°C CFPP for Fame 0. And Fame 0 availability remains tight, keeping its value elevated. Biodiesel stocks are low, with imports not enough to rebuild storage levels, while demand is likely to strengthen further as restrictions across Europe continue to ease.

Vegetable oil slump Values for crop-based biodiesels RME and Fame 0 have followed price volatility across the vegetable oils complex in the past few months. Both vegetable oils and finished biodiesel product have reached record prompt price highs over an extended period of increases, although feedstocks have on occasion surpassed value of the end product.

Vegetable oil prices are now declining rapidly, after a recent peak on 10 June. Soybean oil values in particular have been pressured by concern in the US over meetings between senators and the Environmental Protection Agency regarding the high cost of compliance under the country's Renewable Fuel Standard.

The Argus prompt fob Dutch mill rapeseed oil (RSO) price lost €186.50/t, or 14pc, between 10-22 June. And Chicago-listed front month soybean oil futures plunged by $290.79/t or 18.5pc — at London close — between 10-17 June, though the contract has since regained 5.3pc.

Prices for RSO — feedstock for RME — and soybean oil, often used in Fame 0, have converged over the past three months, bringing the cost of each grade's raw materials much closer. The front-month soybean oil price has overtaken prompt RSO three times since late March and is moving closer again, as RSO falls more rapidly than soybean oil. Prompt RSO was just $11.83/t higher than front-month soybean oil at London close on 22 June.

Some buyers will pay a premium for RME with RSO proof of sustainability (PoS) paperwork as supposed to a balance of PoS from other vegetable oils on account of specific market demands, such as the French ban on the use of palm oil as a biofuels feedstock and its cap on soybean oil .

The premium for prompt RME with RSO PoS is reported at around $45-50/t compared with the Argus RME benchmark, though it has reached $60/t in the past few weeks, participants said.

By Georgia Gratton

Argus fob ARA RME/Fame 0 spread $/t

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