European biodiesel output at risk from negative margins

Biodiesel production margins in Europe have been pushed into negative territory by rising vegetable oil feedstock costs and an uncertain demand outlook caused by a resurgence of Covid-19 cases.

The negative margins have prompted several biodiesel producers in the Mediterranean and central Europe to consider reducing output or shutting down production altogether.

Margins have been eroded by rising feedstock costs. The Chicago-listed soybean oil futures front-month contract increased by around $37/t in the first week of October, while the Bursa Malaysia-listed crude palm oil futures front-month contract has gained around $44/t over the same period, boosted by the threat of more targeted movement control orders in regions across the key palm oil-growing state of Sabah.

The Euronext-listed rapeseed futures contract also moved higher, rising by around $5/t in the first week of October. The vegetable oil complex has been supported in Europe by a low rapeseed harvest across the continent and by a reduction in sunflower crops at a time of rising demand, especially from Asia-Pacific.

But biodiesel prices have not followed the trend. Prompt values for benchmark grade rapeseed oil-based biodiesel (RME) declined by around $7/t in the 1-7 October period on a fob ARA range basis. The spot price for fatty acid methyl ester (Fame 0°C CFPP) rose by around $10/t in the same period, somewhat supported by a tight supply picture in the Amsterdam-Rotterdam-Antwerp (ARA) region.

Production margins are negative for both products, prompting several suppliers to consider reducing output. Some are already running at minimum capacity in central Europe. Market participants say demand for both biodiesel grades is only marginally lower on the year, but buyers are unwilling to commit to additional volumes beyond those for immediate consumption because they are concerned about a further tightening of movement restrictions.

By Giulia Squadrin