European biodiesel prices plummet since start of 2023 amid weakening market factors

European biodiesel prices fell in the first two weeks of March, with sources pointing at a bearish diesel market, poor spot demand and feedstock oversupply.

"Fundamentally, a weakness," a Europe-based trader said March 14, referring to the effects of low diesel and spot demand, poor bidding activity, imports from Asia and high rapeseed oil supply on the European biodiesel market.

Platts, part of S&P Global Commodity Insights, assessed FAME 0 FOB ARA barge prices down $199.25/mt from Feb. 28 to March 14, a decrease of 14.6% to $1,170/mt. The FAME 0 FOB ARA premium over ICE LSGO fell $172.50/mt from Feb. 28 to March 14, a decrease of 31.9% to $368/mt. FAME 0 outright prices are down 13.6% since the beginning of 2023.

Platts assessed the RME barge prices down $272.25/mt from Feb. 28 to March 14, a decrease of 18.2% to $1,227/mt. The RME premium fell $245.50/mt in the same period, down 36.6% to $425/mt. RME outright prices are down 21.2% since the beginning of 2023.

Platts assessed the UCOME outright prices down $177.75/mt from Feb. 28 to March 14, a decrease of 11.2% to $1,403/mt. The UCOME premium dropped $151/mt, a decrease of 20.1% to $601/mt. UCOME outright prices are down 15.2% since the beginning of 2023.

Making price comparisons on the year is difficult, as in March 2022 the Russia-Ukraine war had just begun and commodity markets experienced unprecedented volatility. However, since the beginning of 2023, biodiesel prices have fallen, particularly in March.

European diesel demand struggling in Q1

Market sources identified weakness in the diesel market as one factor in recent biodiesel declines, as most biodiesel is blended into diesel for road transport. One source noted a drop in diesel demand over the winter, with both warmer temperatures and consumers looking to save on energy consumption.

"The recession also meant lower diesel demand for commercial trucking," the source added.

In the diesel market, the ICE low sulfur gasoil front-month future contract has fallen steeply over the past few months and is now at pre-Ukranian invasion levels. It was last assessed March 14 at $802/mt, down from a high of $1,013.75/mt on Jan. 23.

Diesel is a cyclically sensitive commodity, and demand falls when the macroeconomic picture declines. Higher interest rates have been bearish for diesel demand.

Furthermore, there was an increase in supply of diesel in Europe ahead of Feb. 5 sanctions on Russia.

"Europe binged on diesel from around the world, including from Russia, in the weeks leading up to the February products embargo, which made the inventory situation a bit more comfortable, and that against the backdrop of relatively low demand," Hedi Grati, S&P Global's head of Europe/CIS refining research, said.

Poor bidding activity and spot demand tied to Asian imports

Several sources also pointed to poor bidding activity and low spot demand as contributing to weakness in prices.

A producer disagreed, saying that demand for RME has been "relatively okay," although noting a general trend of low demand since the beginning of 2023 and adding that the market has been "lacking buyers the last 10 days."

European market participants also identified imports of UCOME and feedstocks from Asia as contributing to low demand.

When asked about lack of spot activity, a broker said "a lot of big imports [are coming] direct from China," primarily of UCOME. These flows may have been booked in advance, as sources in Asia continue to report a poor export market.

Feedstock markets also face weakness

"Feedstock markets have also been weak, although not as weak as biodiesel itself," a producer said. A second source added March 14 that "in the last few days, RSO [rapeseed oil] has been cheaper that CPO CIF Rotterdam." A third source added that there is "too much RSO" in the market.

European crude palm oil prices have remained firm in March. Meanwhile, rapeseed oil prices have tracked steadily falling Euronext rapeseed futures, which in turn reacted to high destination stocks and declining CBOT soybean futures.

Rapeseed oil FOB-Dutch Mill was heard offered at Eur950/mt and bid at Eur920/mt on March 14, compared to an offer at Eur1,065/mt and bid at Eur1,045/mt on March 1, according to brokers.

In the used cooking oil market, second broker said that "very few buyers are willing to purchase now."

Feedstock weakness may have helped to maintain production margins for biodiesel, but some producers may still be struggling.

"UCOME producers may be forced to slow down," a source said. "Producers may be affected."

A different source added that margins for FAME 0 and RME "are still there."

Market participants are hoping for an increase in activity in April. "April should be a new market. It's driving season, better weather, better demand," a producer said. "I think it will correct itself."

UCO sellers are also reportedly holding onto their supply, hoping that prices rise in April.

Still, sources expect the current weakness to continue for some time. "We need a few weeks of quiet with less volatility," the first broker said.

In diesel, traders have begun to report improving demand.

"The market seems tighter. There is more demand this month. On top of that, there are some refinery maintenances," a trader said.