UCO prices follow weaker biodiesel demand

Northwest European spot prices for used cooking oil (UCO) fell to their lowest since August 2019 in March, with demand for used cooking oil methyl ester (Ucome) biodiesel thinning amid lockdowns for Covid-19.

With consumers' movements restricted, declining diesel demand has eaten into fuel suppliers' appetite for biodiesel. This has led to all biodiesel grades losing significant ground, although the spot market Ucome fob ARA range has posted the most severe losses in 2020, falling by $439/t in three months.

Prices for the feedstock fell to record lows at the start of April, with assessments for UCO on a cif ARA basis moving to $690/t and the price ex-works Netherlands at €700/t ($760/t).

The supply side has also been restricted. Movement limits and lockdown measures across Europe have led to the closure of restaurants and bars, primary sources for UCO collection. Biodiesel producers expect a decline of around 70-90pc in European waste oil collection in March.

The European Ucome industry has in the past relied on feedstock imports to satisfy demand. Close to 1.7mn t of UCO imports were recorded in 2019. But an ongoing movement control order in Malaysia and lockdowns in parts of Indonesia have restricted local collection there. Malaysia sent 180,000t of UCO to the EU in 2019, although a large proportion of that was re-exported from China. Indonesia sent 255,000t.

As the EU's largest supplier, China accounted for a third of all UCO imports in 2019 and returns to the market two months after the lockdown, with domestic collection regaining speed and large restaurant chains reopening.

But a reduced workforce at discharge points in the EU has combined with stagnant domestic demand to leave European traders hesitant to book UCO cargoes. Prices out of China on a fob basis dropped to a seven-month low of $660/t last week, down by nearly $200/t since mid-February. Even so suppliers reported that buyers were still asking for discounts and some had cancelled contracts completely.

Waste biodiesel produced from used cooking oil (UCO) is incentivised by EU transport renewables legislation and is eligible for double counting towards countries' national blending targets. Ucome prices hit record highs in late-2019, when fuel suppliers had moved quickly to fulfil blending obligations for transport fuels before the end of the year.

Firmer demand at the end of 2019 allowed west European Ucome producers to benefit from a record spread between their product and the feedstock. By the end of the first quarter, participants suggested several waste-biodiesel plants in the EU would probably reduce output or temporarily halt operations.

Argus uses import code 151800 to assess imports of UCO and some other inedible industrial vegetable oils.

By Leonidas Kanonis, Giulia Squadrin and Amandeep Parmar