Concerns rise over SE Asian biodiesel feedstock quality

Biodiesel and renewable diesel producers are becoming increasingly concerned about the quality of palm oil mill effluent (POME) feedstock from southeast Asia.

Some traders have put the issue down to rapidly escalating demand and prices, encouraging suppliers to top up scarce supplies with inferior product.

South Korean producer SK Eco was forced to partially close its 250,000 t/yr biodiesel plant because of delivery of a bad batch of the raw material.

POME values have risen by $240/t over the past six months to $800-820/t fob Malaysia, the highest since Argus began assessing this market last February.

This has partly been fuelled by sharp increases in crude palm oil (CPO) costs, which touched 10-year highs last month on the back of labour shortages and adverse weather because of the La Nina weather phenomenon.

Malaysian CPO stocks fell to record low of 1.26mn t in December, the lowest since the national palm oil board began recording data in 2012, and third-month futures hit a peak of 3,888 ringgit/t ($961/t) on the fob Bursa Malaysia exchange as a result.

POME is considered an advanced feedstock under the EU renewable energy directive and so counts double towards transport fuel mandates in the region, making it increasingly sought after by blenders. A series of new renewable diesel and sustainable aviation fuel capacity coming on line in Asia-Pacific and Europe that is geared to use POME as a feedstock will only add to the number of firms fishing from a dwindling supply pool.

Some traders have cited a raft of higher export duties imposed on Indonesian palm oil products last year to subsidise the country's domestic 30pc renewable transport fuel mandate as a possible mitigating factor.

Export duties and levies total $248/t on CPO and $240.50/t on palm fatty acid distillate but just $35/t on POME in February, which may be incentivising suppliers to pump out off-specification material as the waste feedstock to lower costs and increase returns.

By Amandeep Parmar