UCOME-FAME 0 spread reaches record high as used cooking oil prices soar

The European UCOME-FAME 0 biodiesel spread reached a record high on June 8, helped by rallying prices of used cooking oil, or UCO, and weaker FAME 0 demand.

The UCOME-FAME 0 FOB ARA spread reached $680.50/mt on June 8, the highest since the launch of Platts UCOME FOB ARA assessment by S&P Global Commodity Insights in February 2020.

Used cooking oil methyl-ester, or UCOME, flat prices rose 8.5% on the month, and 36.5% on the year, to $2,458.75/mt on June 8. UCOME prices spiked to accommodate high feedstock costs, with market participants reporting positive spot production margins at current levels. UCO CIF ARA T2 prices have increased 9% on the month to $1,900/mt.

The rally in UCO prices comes amid tight availability out of China following easing pandemic-related curbs and delays around the Shanghai port. High container and trucking costs have further supported prices.

"UCO shipping costs remain extremely strong on containers and trucks," said a market participant on June 8. "Restrictions in China are supposed to be going lower, which might improve logistics, but personally, I don't see weakness [in UCO prices]."

The UCOME-FAME 0 spread has also widened on account of reduced buying appetite for FAME 0.

Demand for FAME 0 weakened after the reduction or abolishment of biodiesel mandates -- which have focused on crop-based first generation biodiesel grade -- by some European countries, a source said.

Finland, Sweden, Norway have reduced mandates, while Belgium, Latvia and the Czech Republic have waivered mandates with Croatia waving penalties for non-compliance with blending. However, sentiment has mostly been dampened by Germany potentially cutting the crop-based biodiesel mandate cap from 4.4% to 2.5% in 2023 and phased to 0% in 2030.

Crop-based biodiesel is being targeted for mandate reduction to preserve food supplies and control food inflation in the wake of the ongoing Russia-Ukraine war, and to suppress fuel price inflation.

The RME-FAME 0 spread widened to $485/mt on June 8, the highest since Jan. 11.

Typically, the spread narrows during the European summer season because demand for rapeseed methyl ester, or RME, falls in warmer climates, with its low-cold filter plugging point specification making it preferable for winters.

However, exhausted spot rapeseed oil supplies have led to a surge in nearby prices, and a steep backwardation to new crop oil.

In the FOB-Dutch Mill market on June 8, bids and offers for July loading were heard at Eur2,000/mt and Eur1,900/mt, respectively. For August-through-October loading, sellers and buyers were heard at Eur1,740/mt and Eur1,705/mt, respectively.

Rapeseed oil volumes are substituting sunflower oil volumes as availability of Ukrainian sunflower oil is stifled amid the Russia-Ukraine conflict.

With RME FOB ARA flat prices at $2,263.25/mt on June 8, and July-loading offers for rapeseed oil in the FOB Dutch Mill market heard at $2,145.45/mt in dollar terms, margins are unworkable for RME producers.

"Rapeseed oil is more expensive than RME – if you can wait a month then you can reduce production," said a source.