ASIA SAF ROUNDUP: Dec SAF production costs rise with higher feedstock prices; increased China SAF flows to EU

The Asian sustainable aviation fuel's cost of production closed higher month over month in December, with the Platts-assessed used cooking oil-based SAF jumping by $96.30/mt, or 5.13% month over month to close at $1,974.43/mt on Dec. 31 and palm fatty acid distillate-based SAF climbing by $19.47/mt, or 1.01%, to $1,952.58/mt over the same period, S&P Global Commodity Insights data showed.

However, trade sources saw lower prices in the market in December. The SAF FOB Straits prices closed at $1,903/mt on Dec. 31, down 10.6% on the month, according to data from S&P Global Commodity Insights.

Market participants reported progressively more offers originating from China, the bulk of which came in cheaper than European producers' offerings.

A China-based source said in mid-December, "For SAF FOB China, I am seeing prices around $1,850-$1,900/mt." In comparison, the Platts-assessed SAF cost of production ex-works Northwest Europe was $2,313.18/mt on Dec. 16.

China SAF factories increasing purchases of UCO

Meanwhile, in the Chinese feedstock market, domestic ex-mill China UCO prices rose from Yuan 5,950/mt on Dec. 1 to close at Yuan 6,900/mt on Dec. 31, according to data from S&P Global Commodity Insights.

The spike in local UCO prices was caused by limited volumes and market participants bidding up prices in China.

"There is not too much feedstock during the winter season," a trader said.

Market sources also noted that some new sustainable aviation fuel factories in China are currently purchasing UCO to avoid greater competition in 2025.

"There are many factories in China starting production either in December 2024 or Q1 2025, so they have to start buying UCO despite the high prices. If not, production will be impacted," said a second China-based source.

Commencement of ReFuelEU Mandates in 2025

Market participants are preparing for the ReFuelEU mandates, set to take effect on Jan. 1, 2025. According to S&P Global Commodity Insights data, these mandates will introduce an additional demand of 1.3 million mt for SAF in the European market.

As part of the EU's Fit for 55 initiative, aviation fuel suppliers are required to incorporate a 2% SAF blend into the total aviation fuel pool supplied at airports across the Union.

Consequently, Commodity Insights projects that European SAF consumption will experience a remarkable 216% increase year-over-year, reaching 1.9 million mt in 2025. Notably, Germany, France, and Spain are anticipated to account for 39% of total European consumption.

Under these regulations, fuel suppliers who fail to meet their minimum SAF supply obligations will face penalties amounting to at least double the cost difference between conventional aviation fuel and SAF per metric ton, multiplied by the shortfall in SAF compliance for the reporting period.

A Singapore-based source said, "I expect that there will be an uptick in EU spot SAF prices in Q1 as some will aim to meet the 2% target to show their commitment to decarbonization. China would definitely be playing a role in the SAF supply."

US political landscape raises concerns

With President-elect Donald Trump's return to the US presidency, many industry experts are skeptical about the future of biofuels in the US. The political landscape is shifting, and there is a prevailing belief that the outlook for SAF is not optimistic.

The main differences between the 40B and 45Z SAF tax credits are their eligibility periods, the criteria for emissions reductions, and the scope of application. The 40B tax credit, available for SAF produced between 2023 and 2024, applies to both domestic and imported fuels. It offers up to $1.75/gal based on reductions in lifecycle Greenhouse Gas Emissions compared to traditional jet fuel. On the other hand, the 45Z tax credit, which applies to SAF produced from 2025 to 2027, is limited to domestically produced fuels. It provides up to $1.75/gal based on Carbon Intensity reductions, with the credit amount increasing for each point the CI falls below 50 kgCO2/MMBtu.

One of the critical issues at play is the lack of clarity. The expiration of the 40B program raises serious questions about investment in the sector. If the program CFPC does not receive clear guidelines, potential investors may be deterred from committing resources to SAF production, fearing that the regulatory environment will remain unstable.

What's next in Asian SAF markets?

China's competitive production costs and abundant feedstock supplies are anticipated to significantly influence the global supply of SAF. However, political uncertainty in the United States, coupled with the price disparity between China and EU production costs, may lead to tensions in international trade. The initial market response in January will be closely observed, particularly as China's SAF production ramps up in the first quarter of 2025.