Asia's UCO market poised for upturn in 2024, UCOME demand prospects uncertain

Asia's used cooking oil market may head higher in 2024 on its rising demand as a sustainable feedstock for biodiesel, while used cooking oil methyl ester biofuel could face the prospect of uncertaindemand from the EU, according to trade sources.

The FOB UCO China price could recover from the lows seen in December 2023, as demand inquiries from buyers in Europe are expected to pick up in January after the low demand season in the fourth quarter.

Buyers in Europe typically avoid buying huge quantities of palm-based UCO during winter as the risk of it being delivered as solid due to its high cold filter plugging point is elevated. However, this will no longer be a cause for concern after winter ends, traders said.

"Buyers will need to replenish [inventories] in the first quarter. So, I expect some improvement in demand for UCO from January onward," one Singapore-based trader said.

China's UCO spot price had declined 51% from the highs seen at $1,627/mt FOB in June 2022 to $791/mt FOB China in early December, S&P Global Commodity Insights data showed, partly mirroring poor biodiesel fundamentals in Europe.

Platts, part of S&P Global Commodity Insights, began assessing the FOB China UCO price in January 2021.

Malaysia's UCO supplies will also likely be actively sought after thisyear, traders said. A surge of Malaysian UCO shipments in Q4 2023 to Singapore, the EU and the US underscored the growing thirst for UCO as a feedstock from other steady sources of supply in the region, not just from China.

Malaysia's UCO shipments to the EU in November jumped 43% on the month to 58,465 mt, data from cargo surveyor Intertek Testing Services showed Dec. 5.

"I think more and more buyers, including those from the EU and the US, will continue to seek out Straits UCO next year," another trader said.

US market ripe for China's UCO

The stage also looks set for China's UCO exports in 2024 to continue flowing to the US, a market that had until last year not seen any Chinese UCO imports, trade sources said.

The tide changed for Chinese UCO exports in 2023, with the US gaining prominence over Europe as the primary destinationafter the US enacted the Inflation Reduction Act in August 2022. This, in turn, created a lucrative market for biofuels, offering substantial tax credits for producers of sustainable aviation fuel and biodiesel.

These incentives proved highly attractive for Chinese UCO exporters, sources said.

China's UCO exports over January-August 2023 reached 1.18 million mt, according to S&P Global data. The main destination was the US, followed by the EU and Singapore.

"The US will be a much more attractive market [than the EU] for Chinese producers, especially if they can sell to HVO [hydrotreated vegetable oil] producers and can fetch a much higher premium than your standard cargo," a China-based trader said.

China's biodiesel under scrutiny

China's used cooking methyl ester, or UCOME biodiesel, may suffer some early demand setbacks at least in the first quarter of 2024, as the EU is tightening scrutiny on biodiesel imports from China and could impose measures to curb an influx of Chinese imports, trade sources said.

The Chinese UCOME market is expected to come under some downward pressure in early 2024 after the European Commission said Dec. 20 it will launch an antidumping investigation on Chinese biodiesel imports.

"It's like a double whammy. First, the probe [by the EU] into Chinese exports due to allegations of possible fraud and now this," one Singapore-based trader said. In June 2023, the European Commission launched a probe on China-sourced imports following complaints from the industry about possible fraud relating to those imports.

The FOB China UCOME offers came under pressure in December, with Platts assessing the Chinese UCOME price at $1,000/mt Dec. 20, S&P Global data showed. According to market sources, further price downside is expected.

By comparison, the FOB China UCOME was assessed at $1,290/mt in the same period in 2022. Platts began assessing the FOB China UCOME price in August 2022.

China's UCOME supplies to the EU could decline further in the first few months of 2024, sources said.