Chinese UCO export opportunity to US to persist in coming months: traders

The market conditions to export Chinese used cooking oil to the US will persist in the months ahead amid incentives from the Inflation Reduction Act, while outflows to Europe have fallen amid the EU's probe into allegations of fraud surrounding volumes from China, trade sources told S&P Global Commodity Insights.

Chinese UCO exports have been shifting this year to fulfill growing US biodiesel demand and moving less toward the EU markets, market sources in Asia said.

More than 50% of the country's exports headed to the Atlantic in the third quarter of this year, trade sources said.

"Last year, there were practically zero Chinese UCO imports [into the US]. But this year that picture has changed... Chinese UCO cargoes have been flowing to the US," one trading manager said.

In terms of export volumes, China has led the charge among other regional exporters. Chinese exports of UCO to the US rose to 384,000 mtover January-August from zero imports last year, showed Chinese customs data, due to the Inflation Reduction Act in the US which includes tax credits for producing sustainable aviation fuel and biodiesel.

According to trade sources, the IRA offers a tax credit of $1/gallon on the production of biodiesel. "More and more companies are seeing the benefits from the IRA and taking full advantage of it," a trader based in Singapore said.

Chinese UCO diverts away from Europe

Given the recent launch of the EU's probe into Chinese biodiesel exports due to allegations of possible fraud, Chinese producers and exporters have diverted much of their volumes to the US this year after it became economically viable to do so, market sources said.

Europe's imports of UCO comes mainly from China, but the volumes to the EU have dropped since the European Commission launched the probe into Chinese imports.

Chinese UCO exports to the EU fell 62% to 267,000 mt in the first seven months of this year, according to trade data. Those shipments mainly went to the Netherlands, Spain and Germany. Germany's concerns about mislabeled Chinese biofuels have affected demand from European buyers, market sources added.

Sources familiar with the EU market have so far indicated slower UCO demand approaching the year end, but brisk buying interest heard in the market seems to suggest that US buyers remain keen on Chinese UCO.

"Assuming the fraud allegations are settled, I expect Chinese UCO exports to remain steady," the Singapore-based trader said.

Platts, part of S&P Global Commodity Insights, assessed standard UCO cargoes loading from China at $855/mt Oct. 31, unchanged from Oct. 30.