China's UCOME prices reach 17-month low on policy uncertainty, EU scrutiny

Chinese UCOME prices plummeted to 17-month lows, as the lack of clarity on government policies, surging freight costs and the ongoing EU investigations into biodiesel fraud and antidumping issues weighed on sentiment.

Platts assessed UCOME FOB China at $955/mt Jan. 12, down 42.12% from $1,650/mt on Aug. 15, 2022, S&P Global Commodity Insights data showed. Platts began assessing UCOME FOB China prices on Aug. 1, 2022.

Chinese UCOME buyers have been exercising caution amid investigations by the European Commission, resulting in sharply lower biodiesel demand in the EU.

In June 2023, the EC began a probe following a complaint by a member state regarding potential fraud associated with biodiesel imports from China. Subsequently, in December 2023, the EU initiated an antidumping investigation into biodiesel imports from China.

If dumping and harm to EU producers are confirmed, the EC may impose import duties to address the impact of unfair trading. The EC stated that the provisional measures could be implemented within eight months, and the investigation is expected to conclude within 14 months.

"Despite the EU investigation on antidumping probes, there were still buyer inquiries every day. However, the case caused some buyers to hesitate and hold back on their purchase," a Chinese producer said.

"Our production is currently running at one-third capacity after the EU investigation on antidumping probes as it hurts our export volume," he added.

Sluggish winter demand

Meanwhile, the winter season in the Northern Hemisphere also hampered demand for UCOME, a waste-derived material primarily sourced from palm oil, owing to its elevated cold filter plugging point.

The increased likelihood of solidification during colder months prompts European buyers to avoid substantial UCOME volumes, consequently dampening demand. This decline in demand is notable in winter, especially from Europe -- one of China's major export destinations for UCOME.

Surge in freight rates and increase in risk premiums exacerbated worries for biodiesel producers.

Shipping expenses for transporting UCOME from China to Europe rose sharply, jumping to $190/mt as of Jan. 12 from $130/mt in November 2023.

A charterer said that the supplementary war risk premium has surged six to 10 times since early-October for tankers navigating through the Gulf of Aden. The increase varies based on the value and size of the ship.

"This has disrupted the biodiesel trade from Asia to Europe," a trader said.

"There is still some demand, but then freight cost is also a main concern," second producer said.

China policy uncertainty

China's National Energy Administration (NEA) is expediting the development of biodiesel projects and carbon crediting methods to boost domestic demand. The focus is on road transportation and shipping, specifically targeting commercial vehicles and testing B5 and B24 biodiesels on waterways. The NEA aims to attract private sector financing through the China Certified Emission Reduction market.

However, nearly two months have passed since the announcement, and despite the NEA's efforts to create domestic demand, further details on the financial incentive have not been announced yet. Financial aid is necessary to transform China's export-driven industry and generate domestic biodiesel demand, a producer said.

"The policy is still in a very early stage and lacks crucial details regarding the type of financial aid that will be provided and how producers, consumers, and other parties will benefit from it," the producer added.

"We do not think that this will boost biodiesel domestic demand and it will not help in biodiesel prices and demand in short term," he said.

Looking at alternatives?

Amid the ongoing antidumping investigation and unclear biodiesel policies in China, producers are seeking alternative export markets for UCOME. Some Chinese suppliers are already transporting UCOME despite its availability in the Straits region.

On Nov. 21, GS Caltex, South Korea's second-largest oil refiner, sold its first 1,000 mt biofuel blend (24% UCOME) to Maersk Oil Trading in Singapore, advancing its carbon-neutral efforts.

The company, with leased biofuel storage tanks in Singapore, also secured agreements for a palm oil refining plant in Indonesia.