There is little prospect for an upturn in European biodiesel prices and premiums to Ice gasoil in the remainder of the year, following a fall to record lows as a result of weak feedstock costs.
A perfect storm of low benchmark gasoil prices on the back of weak crude levels, soft feedstock numbers because of bumper crop harvests, and uncertain demand heading forward saw outright RED RME and RED Fame 0 prices drop to historic lows of $982/t and $977/t respectively on 15 July.
Premiums to Ice gasoil — which is how the market generally assesses biodiesel — also fell to a record $105/t for RED RME and $102/t for RED Fame 0 in the same month.
While production margins are slimmer, they are still workable. But with little upside expected in demand for the rest of the year, players are watching to see which drops faster, gasoil or vegetable oil.
The beanoil-gasoil (BOGO) spread was hovering at around -$74/t in mid-July, its lowest level since January.
On the paper side, biodiesel premiums are largely flat between September and the first quarter of 2015, despite historic seasonal fluctuations dictating that summer grade RED Fame 0 should fall over the winter months and vice versa for RED RME.
The two main biodiesel grades in Europe have been trading at or close to parity this year, despite RED RME trading at up to a $160/t premium to RED Fame 0 in 2013.
Much of this is down to the lack of RED SME from Argentina and RED PME for Indonesia since the EU erected anti-dumping duties against these nations in November last year.
With little summer grade to blend with RED RME to make RED Fame 0, the price gap between the two has closed dramatically.
Indonesian RED PME producer Musim Mas is leasing formerly idled Mediterranean based biodiesel refineries in order to import crude palm oil and circumvent the EU tariffs. These include a 600,000 t/yr Castellon plant and 300,000 t/yr Ferrol refinery from Spanish firm Infinita Renovables. But it remains uncertain how much of this product will make it to northwest Europe.
Demand is expected to be stable at best, with particular concern from Germany, which is set to introduce a greenhouse gas (GHG) quota in January to replace the current blending mandates of biodiesel and ethanol into transport fuel.
Germany currently requires a 6.25pc biofuel blending target in road transport fuel, but from 1 January 2015 this will be replaced by a mandate requiring a 3.5pc reduction in GHG emissions using biofuels. By 2017 a 4pc reduction is stipulated.
The fear is that this could reduce biodiesel sales in Europe's largest market by up to 300,000 t/yr, from around 2.2mn-2.4mn t/yr.
This will in particular harm first-generation biofuels such as RED RME and Fame 0, although it may benefit second-generation grades produced from waste oils, such as UCOME and TME.
But in recent months these waste products have also suffered as they are more expensive to produce. So despite the fact that they count as double towards biofuels mandates, buyers are purchasing RME and Fame while they hover at record low levels.
ap/ca/es/ts/et
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