Shipping suspension threatens Chinese UCO market

South China Sea used cooking oil (UCO) container freight prices have nearly doubled as shipping companies suspend operations until the middle of February to meet Covid-19 quarantine requirements.

Vessel operator ONE will halt feeder operators for a minimum of six weeks prior to Lunar New Year on 1-5 February, while Hapag-Lloyd is suspending services from late December to the middle of February to comply with Covid-19 quarantine requirements for ship crew plying the route between south China and Hong Kong. But Interasia, a popular operator in Hongkong for exporting flexitank UCO, has not announced any suspension so far.

The potential bottleneck meant that UCO container freight rates from Hong Kong to Malaysia have risen to $45-75/t from $30-45/t, according to UCO traders.

Bulk freight from mainland China may be relatively unaffected as local biodiesel plants in south China typically shut for 30-45 days of maintenance before the Spring Festival holiday, which would offset the impact of the depleted loading schedule.

But the potential for stricter loading rules in light of the new Covid variant Omicron may lengthen delays and raise demurrage costs.

The current loading duration for bulk vessels in China is 3-5 days and freight to the Amsterdam-Rotterdam-Antwerp hub increased to $210/t on 26 November from $150-170/t a week earlier, according to a shipping broker.

South China UCO sellers have lowered bulk offers to $1,280/t fob China today from $1,300/t a week earlier.

China is a typical exporter of UCO bulk to Europe while Hong Kong has some flexitank UCO exports to southeast Asia.

Hong Kong exported 10,820t of UCO in January-October, with 79.6pc to Malaysia and 11.3pc to Spain.

International traders collected Asian UCO at Malaysian ports before integrating it into large vessels for shipping to Europe.

A record high Hong Kong-ARA freight cost in excess of $10,000/container has closed the UCO arbitrage this year.

Hong Kong's monthly UCO exports t