COMMODITIES 2025: Asian UCO export landscape faces tightening amid policy shifts

Asia's used cooking oil export market faces significant changes in 2025 as shifting regulations and trade dynamics reshape the sector.

China's decision to eliminate the 13% export tax rebate on UCO, effective Dec. 1, is set to impact global trade flows, reducing export volumes and directing more UCO toward domestic renewable diesel and sustainable aviation fuel production. This policy aims to curb fraud and bolster China's biofuel sector, such as biodiesel like UCOME.

This move coincides with broader uncertainties in global markets, including the US, where the Inflation Reduction Act's carbon-intensity-based credits remain unclear. The EU's antidumping duties on biodiesel imports further complicate the trade landscape.

Meanwhile, countries like Indonesia and Malaysia are expanding their biofuel mandates, tightening regional UCO supplies. With these converging factors, Asia's UCO export market is set to experience a notable tightening in 2025, reshaping the industry's dynamics and trade routes.

The US Department of Agriculture (USDA) reported that China policy change would reduce fraud incentives and stabilize domestic supply chains. However, it is expected to raise export costs and may reverse the growth of UCO exports from China.

China's broader biofuel strategy includes a 2025 SAF consumption target of 50,000 mt, requiring an estimated 3 million mt of UCO at least to meet a 2% SAF mandate. The country also plans to introduce an export quota for B24 biodiesel-blended marine fuel in 2025 to help local biofuel producers impacted by EU antidumping tariffs.

Market sources suggest that, while the tax rebate removal will disrupt trade flows and raise raw material costs, it may shift focus from raw material exports to finished products, particularly SAF, increasing export value. The booming SAF market, which is eligible for export to Europe without antidumping duties, presents a high-value alternative.

"In 2025, UCO export volumes will likely decline due to the rebate removal, boosting domestic supply and easing China's biofuel feedstock crunch," said a Chinese producer.

Biobunkers drive UCOME demand

China's UCOME exports have dropped since Aug. 16, when the EU imposed antidumping duties of up to 36.4% on Chinese biodiesel. High feedstock UCO prices and low profit margins, combined with antidumping tariffs, have made deals difficult and this may persist into 2025.

However, the biobunker market, especially for B24 biobunkers, offers new demand. The EU's expanded Emissions Trading System and the FuelEU Maritime initiative set aggressive greenhouse gas reduction targets for ship fuels, increasing the need for UCOME.

Concurrently, the FuelEU maritime initiative has set targets for reducing the greenhouse gas intensity of ship fuels by 2% by 2025; 6% by 2030; 31% by 2040; and 80% by 2050.

Singapore has become a major hub for Chinese UCOME, especially after EU tariffs on Chinese biodiesel. The widening price gap between Straits and Chinese UCOME has made the latter more competitive.

"Chinese UCOME is preferred due to better pricing, and this trend is expected to continue," said one UCOME trader.

Increased biobunker purchases in Asia, driven by emissions mandates and Carbon Intensity Indicator targets, have sparked optimism for UCOME demand in Q1 2025 and beyond.

Other origins scenario

UCO supply from major Asian exporters, including Malaysia and Indonesia, is expected to remain tight in 2025 due to their large waste oil potential as top palm oil producers. Indonesia's UCO sales may tighten further due to rising domestic demand, with UCO expected to meet 32% of its biodiesel needs. Indonesia has also mandated 1% SAF usage for international flights starting in 2027, alongside maintaining a 35% biodiesel blending rate (B35) in 2024 and advancing its B40 trial for off-road sectors.

In Malaysia, Petronas plans to expand SAF production from UCO and palm oil mill effluents (POME) at a new refinery, operational in 2028, processing 650,000 mt/year to produce 700 million liters of SAF. However, UCO supply is hindered by traceability concerns.

Futures and options exchange Bursa Malaysia launched a US dollar-denominated UCO FOB Straits (Platts) Futures Contract (FUCO) in December.

India's government is expanding its UCO-based Ruco initiative to meet a 5% biodiesel blending target by 2030. India's UCO market grew from 3 million mt in 2022 to 3.2 million mt in 2023 and is projected to reach 4.5 million mt by 2030.

"UCO is becoming a key feedstock for India's biodiesel initiatives and goal. However, with the growing demand, traceability and quality control will be crucial factors in ensuring a stable supply chain for biofuel production," said an industry source based in Mumbai.

US uncertainty

The US market remains uncertain due to delays in implementing the Inflation Reduction Act's carbon-intensity-based 45Z credit and potential trade tariffs following the 2024 election. A possible reduction in soybean oil's carbon intensity could lower UCO demand in the US, potentially redirecting Chinese UCO to Europe. The US had been a key destination for Chinese UCO in 2023 due to tax credits for SAF and biodiesel producers.

Platts, part of S&P Global Commodity Insights, on Dec. 6 assessed UCO FOB North Asia flat at $990/mt, with no disproving value and below an offer at $1,030/mt. UCO FOB Straits was flat at $1,000/mt, with no disproving value, above a bid at $980/mt and below an offer at $1,020/mt.

Platts assessed UCOME FOB North China up $5/mt at $1,065/mt, amid bullish price sentiments, above a higher bid at $1,030-$1,050/mt and below an offer at $1,110/mt. UCOME FOB Straits was up $5/mt at $1,200/mt, in line with higher indicative value and below an offer at $1,210/mt.