Looming EU targets drive Ucome price higher

With fuel suppliers rushing to meet their renewables blending mandates for transport fuels before the end of the year, demand for used cooking oil methyl ester (Ucome) — a waste-based biodiesel incentivised under the EU's Renewable Energy Directive (RED) — has driven prices in the Amsterdam-Rotterdam-Antwerp (ARA) region to near record levels amid tight supply.

While Ucome is not usually a preferred product during the winter period because of an associated cold filter plugging point (CFPP) of 0°C, many in the market have been focusing on the high greenhouse gas (GHG) savings product, which can be double-counted by volume towards transport targets as per RED legislation for wastes and residues. Demand for the waste-based biodiesel in northwest European prompt physical markets has increased sharply this quarter, with a record 60,000t traded on the spot market in October alone.

The Argus RED Ucome fob ARA range spot price, with GHG savings of 87pc, has hit highs not seen since June 2014 this week — rising to $1,235/t yesterday, up by $111/t compared with 1 October. For comparison, Fame 0°C CFPP — a European benchmark price comprising crop-based biodiesel — was set at $803/t on 12 November on a fob ARA range basis.

With rival waste-based biodiesel made from tallow (TME) having a CFPP of around 12-13°C and renewable diesels produced through non-esterification processes being much more expensive, Ucome has become the primary option for market participants looking for double-counting product to reach their targets before the end of the year.

The increase in demand has come at a time of limited availability. The European market lost around 80,000 t/yr of Ucome production in August after Dutch producer Biodiesel Kampen was declared bankrupt and Ucome imports of Chinese origin have slowed in recent months.

Prices for imported used cooking oil (UCO) have also been increasing steadily on a cif ARA basis, with values hovering around the $700/t mark in October and the first half of November, much higher than a year earlier when they averaged $610/t in the same period.

The RED Ucome price will likely soften, more in line with seasonal norms, in the first quarter of next year, as participants renew their focus on biodiesel with lower CFPP in the first few months of the new year. The supply picture is also expected to ease, as production will resume at Kampen's 80,000 t/yr plant in Overijssel, Netherlands, having been acquired by another local producer Sunoil. But this comes against a backdrop of higher renewables blending targets across EU member states as they seek to hit a 10pc share of transport fuels for 2020 under RED, which should drive the Ucome price higher still from the second quarter.

By Giulia Squadrin