China UCOME prices reach five-month high amid rising feedstock costs, demand

Chinese used cooking oil methyl ester prices reached a five-month high March 14 due to rising feedstock used cooking oil costs while demand has strengthened on seasonality and potential antidumping duties.

Platts assessed UCOME at $1,050/mt FOB China on March 14, up 14.43% from $935/mt on Jan. 25, according to S&P Global Commodity Insights data.

The recent uptick in Chinese UCOME has narrowed the spread between Straits-China UCOME to $10/mt on March 14 from $100/mt on Feb. 21, S&P Global data showed.

Rising cost of feedstock

Since mid-February, Chinese UCO prices have increased $65/mt to $900/mt on March 14 on the back of lesser collection during the Lunar New Year period as workers took off. In addition, the key collection hubs of Shandong, Shanxi and Hebei had been affected by snowfall and icy roads during end-February, nearly paralyzing unprocessed UCO transportation. As the situation improves, transportation costs have increased, pressuring UCO supply.

An uptick in feedstock costs has started to erode margins for UCOME production, market sources said, adding that they would not be able to break even if UCO rises further to mid-$900s/mt.

"Recently, feedstock prices have risen, so we have no choice but to increase our UCOME offers," a China-based producer said.

Anticipated antidumping duties

The European Commission began Dec. 20, 2023, antidumping investigations against Chinese biodiesel following a complaint by the European Biodiesel Board. EU producers have alleged that Chinese imports are priced unfairly low, harming their industry. Some of the market participants are anticipating around 20% customs duty to be implemented on biodiesel imports from China while others expected the levy to be starting around the third quarter.

Buyers were heard inquiring for prompt-loading UCOME cargoes with the aim of securing product before the anticipated duties kick in, sources said. The recent boost in demand has led to a slight increase in trading volumes for UCOME in the week started March 10.

"There has been an increase in inquiries from buyers interested in purchasing UCOME lately and asking about the antidumping duties. I think they are planning to buy before the duties kick in," a regional producer said.

However, some participants were concerned whether the duties would be backdated from the start of the investigation period to the implementation date.

"It is very doable to back track, as when proof of sustainability is issued, everything is logged," a market participant said.

Renewed demand after winter

Meanwhile, the Northern Hemisphere winter had 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.

"It usually gets better after winter, as some buyers are more cautious in purchasing during the winter," a trader said.

While there was an increase in inquiries from European buyers, bid levels have been low as they seek to compensate for the expected antidumping duty, resulting in a wide bid-offer spread of $40-$80/mt.

"We're getting bids from European buyers at $980-$1,020/mt levels, while currently our offer level is at $1,060/mt," a regional China-based producer said.

Biobunker demand

Chinese UCOME producers have been on a hunt for other outlets in preparation of the antidumping duties. The producers have identified the Singapore biobunker market as one avenue for their product.

Singapore's biobunker market mostly uses UCOME as the bio component. Singapore's overall sales of bunker fuel jumped to a record 51.8 million mt in 2023, with biobunker sales rising to 518,000 mt in 2023 from 140,200 mt in 2022, latest data from the Maritime and Port Authority of Singapore showed.

"We are hearing about some demand for high Cold Filter Plugging Point (CFPP) UCOME from Singapore recently," a China-based market source said.

The EU will begin capping greenhouse gas emissions intensity of marine energy trades within the bloc through its FuelEU Maritime program starting in 2025. The EU's Emissions Trading System will be extended to cover CO2 emissions from all large ships entering EU ports, regardless of the flag they fly.

The GHG intensity of fuels used in ships should be cut progressively -- 2% by 2025, 6% by 2030, 31% by 2040 and 80% by 2050, while the International Maritime Organization plans to implement similar rules globally from 2027.

This regulatory push is expected to drive higher consumption of biobunkers, which in turn could support UCOME demand.