Used cooking oil methyl ester (Ucome) had its strongest month yet on the Argus Open Markets (AOM) deal initiation platform in October, with 107,000t changing hands.
Ucome activity more than quadrupled on the month after only 26,000t traded in September. Ucome traded in October made up 19.6pc of total Ucome volumes traded in 2024 so far.
For all three products combined — RME, Ucome, and Fame 0 — October 2024 was the most active month of trading since August 2023, and before that, July 2022. RME trade totalled 145,000t, a 150pc increase from September, and 104,000t of Fame 0 changed hands, a 108pc increase. In total, 356,000t of biodiesel was traded in October, up from 134,000t in September and 143,000t in August.
The rise in activity aligned with the start of the new quarter and some major news for the market. At the end of September, Germany proposed a draft bill that would prevent excess greenhouse gas (GHG) quota tickets from being carried into 2025 and 2026. GHG quota tickets are the compliance mechanism for the GHG reduction mandate that governs biofuels usage, and the market is heavily oversupplied at the moment, pressuring down prices and encouraging companies to buy and use tickets rather than physical biofuels. By starting from scratch for 2025, participants except demand to pick up substantially, although until the end of 2024 tickets will remain the cheaper option.
The immediate response to the announcement of the draft bill in Germany was a surge of activity in the related paper markets for the fourth quarter, a final piece encouraging physical trading. As of the last day of the October contract, open interest stood at 1,742 lots for Ucome, 1,167 lots for Fame 0, and 2,472 lots for RME. Total open interest for the fourth quarter was 4,655 lots for Ucome, 4,396 lots for Fame 0, and 7,529 lots for RME, according to Ice data. Many companies with strong paper positions will manage exposure by trading some portion of the total volume in the spot market.
The Dutch government confirmed that the country's ticket carry-over levels will be reduced, which should also increase biofuels demand next year. Biofuels mandates throughout Europe go up at the start of the new year, along with the introduction of ReFuel mandates for aviation and shipping.
This all combines for a much more positive outlook for 2025 demand than the market expected, as well as stronger competition for supply. The increase in trading started a quarter ahead, as companies look to take advantage of the changes, prepare for 2025, and still cover any shorts until the end of this year.
European producers have been struggling with low production margins, which has slowed down production levels. European supply has tightened because of this and imports are down because of provisional anti-dumping duties on China, which may have also encouraged some companies into the window to find product.
In the macroeconomic environment, volatility in energy markets following increased tensions in the Middle East also prompted some trading, as the Ice gasoil contract underpins European biodiesel prices and has closely followed military developments. Some participants reported an overall higher risk appetite for the fourth quarter after several months of very subdued market activity.
