Viewpoint: Duties to support EU biodiesel production

European biodiesel values should find support in the first half of 2019 from the European Commission's proposed definitive countervailing duty on Argentinian biodiesel and its proceedings to investigate Indonesian product on similar terms.

Biodiesel producers in the EU hope for greater market share in 2019 having resisted massive imports of competitive Argentinian soybean methyl ester (SME) and Indonesian palm methyl ester (PME) that entered the market following the annulment of EU anti-dumping duties after five years.

The European Biodiesel Board (EBB) has called for anti-subsidy duties (ASDs) on Argentinian companies as soon as possible.

"We have suffered massive injury from Argentina's subsidies over the last 18 months," it said. It said a large majority of EU states would vote to support the commission's proposal for duties of between 25-33.4pc.

The commission plans to ratify its proposed ASDs on Argentina's biodiesel exporters by February at the latest. Any duties against Indonesian producers will come much later, with proceedings for investigation initiated on 6 December and a maximum of 13 months before conclusion.

There was a pronounced effect of a more varied biodiesel blending pool on the northwest European market in 2018. But news of duties and the prospect of a loss of supply of Argentinian SME has already supported the value of fatty acid methyl ester with a cold filter plugging point (CFPP) of 0°C (Fame 0), for spot and forward delivery.

The EU imported 1.3mn t of SME biodiesel from Argentina in the first nine months of 2018, up from just 30,000t during the same period in 2017. The imposition of ASDs on Argentinian exporters would cut supply to the European market by around 1mn-1.5mn t in 2019.

Increasing biodiesel demand in Asia-Pacific will weigh on import volumes in the first half of 2019 — before any duties. This will lead to rising demand for domestic European first generation biodiesel production and for waste product, for which availability is already tightening globally as used cooking oil methyl ester (Ucome) consumption increases.

The wave of SME imports — with a CFPP of around -5°C — initially cut into the share of European demand assumed by RME — with a CFPP of around -13 to -15°C. This resulted in production cuts across France, Germany and Italy.

Falls in RME deliveries to the Amsterdam-Rotterdam-Antwerp (ARA) region resulted in higher spot values. This improved output margins for those able to bring product to market, even before extra demand because of colder weather.

RME prices have far surpassed previous all-time highs through the fourth quarter of 2018 as the grade's seasonal properties supported buying demand and logistical constraints on the Rhine river dented supply. RME peaked at $1,497/t fob ARA on 15-16 November.

At the same time, a combination of SME and PME imports have boosted Fame 0 blendstocks and have continued to pressure its price.

Forward prices indicate spot RME will weaken in January. The first-quarter strip for 2019 is trading above the average spot prices assessed during the same quarter from 2015-18. Fame 0 paper for the first quarter of 2019 is close to the historic average price over the previous four years.

Against the backdrop of lower ex-EU biodiesel supply, at least 14 EU member states will increase their biofuels blending mandates at the turn of the year. Eleven double-count waste-derived fuels — primarily met with Ucome and tallow methyl ester (Tme).

Spain is in the process of introducing double counting of waste-derived biodiesels towards mandates, likely in the first quarter of 2019. The country's dominant PME producer, Musim Mas, is considering converting its 200,000 t/yr Cartagena plant to use waste oils and fats in 2019. Preparations to introduce double counting in Spain, likely up to 0.5pc, early in 2019 are underway and this is incentivising the use of used cooking oil (Uco) and other scarce waste feedstocks.

Spain produces around 350,000 t/yr of Ucome and Tme. The recent restart of a plant at Linares, idled for at least three years, should add around 60,000-70,000 t/yr through 2019.

As demand for waste-derived biodiesel and feedstock grows, Europe's Ucome and Tme producers will find themselves competing with hydrotreated vegetable oil (HVO) — a drop-in standard biodiesel — for domestic and imported feedstock supply in 2019.

European capacity for HVO production will rise in 2019. Total and Eni plan to start their La Mede and Gela plants in the first quarter, representing a combined production capacity of 1.1mn t/yr.

La Mede has caused controversy because it has been authorised to use up 300,000 t/yr of imported palm oil — nearly half the site's required 650,000 t/yr of feedstock. The plant is able to use 150,000 t/yr of vegetable oil feedstock, only 50,000t of which is set to be rapeseed oil.

The remaining 200,000t will come from animal fat, Uco and residues, although there is concern whether there are enough of these available. The majority of Gela's feedstock will come from palm oil — Eni has pledged to use as much Uco as it can.

Asia-Pacific's growing biodiesel demand means Europe could find imported supply tightening of biodiesel and feedstock. The EU imported 215,000t of Ucome from China in January-September this year, up by 48pc year on year, but volumes have varied significantly from month to month depending on freight costs and seasonal conditions.

European customers have been concerned about free fatty-acid levels in Chinese Ucome rising above EU standards. China has a growing domestic biodiesel market, and producers could be encouraged to save supply to sate domestic demand if ARA prices decline.