COMMODITIES 2025: European biodiesel market to navigate vegetable oil volatility, regulatory changes, rising demand in 2025

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025

The European biodiesel market is anticipated to grow in 2025, driven by mandates stimulating demand. Feedstock availability and high biodiesel prices, however, will be the key challenges market participants will face throughout the year.

Shifting UCO trade flows

Following the reelection of Donald Trump in the US, companies are bracing for potential tariffs on imports of Chinese used cooking oil, which may lead to a shift in trade flows toward the EU. Trump has threatened to raise tariffs on almost all imports, in particular on China-origin goods.

From January-October 2024, the US imported 1.075 million mt UCO from China, more than double that of the previous year at 536,729 mt, according to S&P Global Commodity Insights data.

One source noted uncertainty around Chinese-origin feedstock. "[I] heard that some companies are staying off Chinese feedstock, which causes non-Chinese origin to increase in value," one European source said regarding the European UCO market.

"The main question is: what will Trump do? If he imposes tariffs on UCO imports, then the flow will be redirected to EU. If that happens, it will probably increase the supplies and push prices down a bit. Now if that does not happen and flows continue to go into the US, the effect will be the opposite," the source added.

Effective Aug. 16, 2024, the EU Commission placed antidumping duties on biodiesel and renewable diesel imports from China. The EU enforced a 36.4% duty on biodiesel and hydrotreated vegetable oil from Chinese producers, with 40 companies that cooperated with the investigation receiving a lower duty of 23.7%. These provisional duties are expected to be replaced with definitive measures in February 2025.

Aviation, maritime demand competes

With mandates coming into effect in 2025, biodiesel producers, maritime sectors and sustainable aviation fuel will compete for limited supply of UCO feedstock.

Under the EU's ReFuel initiative, SAF must make up at least 2% of aviation fuel in the EU by 2025. Feedstock makes up the majority of SAF's costs, with a growing number of competitors across industries scrambling to secure volumes and meet their own decarbonization goals.

Likewise, in maritime sectors, under Fuel EU Maritime rules, operators are set to cut the greenhouse gas emissions intensity of fuels used by ships in EU-related trades by 2% from 2025. The move from conventional oil-based fuel to biobunker fuels is expected to bolster demand for UCO.

"Whether it's going to be B24, B30 or B50 is something to be determined going forward," Constantinos Capetanakis, bunker director at Star Bulk, said, adding that most bioblends in the market are expected to be based on UCOME, but "surely" more will appear as demand picks up.

Declining vegoil stocks

Supplies of crop-based feedstocks are expected to remain disrupted, spelling trouble for biodiesel producers' blending requirements.

Market participants will continue to reduce palm oil use in line with the Renewable Energy Directive phaseout schedule and the enforcement of the EU deforestation regulation.

Rapeseed oil is one of the most dominant feedstocks in the EU for the production of the biodiesel rapeseed methyl ester. It mixes well even at lower temperatures than biodiesel produced from other feedstocks, making it a more suitable fuel for colder regions.

"The feedstock is extremely difficult to get a hold of," a third biodiesel source said regarding RME. "So if you look at the outlook for rapeseed, there's a big decline on the year-over-year production in Europe and globally, it's going to be a fairly tight product, so I think that's being reflected in the RME price on top of the usual seasonality of demand."

Currently, 20% of the world's vegetable oils and oilseeds production is being absorbed by biofuels. If there are any changes in government policies on biodiesel, there will be shortages of vegetable oils for food use in 2025 and probably 2026 as well, Thomas Mielke, executive director of ISTA Mielke GmbH, the publisher of Oil World, said.

Commodity Insights estimates European (EU+UK) rapeseed production in 2024-25 at 17.9 million mt.

Compliance issues

The EU's biofuels traceability platform, the Union Database for Biofuels, could lead to reduced supply volumes, according to BioLedger CEO Patrick Lynch.

The UDB is designed as a global mass balance system to enable the EC to swiftly and effectively respond to fraud. The implementation of the UDB could result in less supply as certain products may not meet the criteria, which could limit availability and push up prices.

The commission is still working on the full launch of its Union Database for biofuels and bioliquids, with market participants indicating only partial functionality of the EU-wide mass balancing platform, according to the European Biogas Association.

"We may see a price surge due to the UDB being implemented," one market source in the UCO sector said. "The reason being that part of the market offer [product] which does not qualify with new rules and [therefore] may not be able to offer, resulting in higher prices."

Another source said if companies were struggling to meet the criteria, "that might take UCO out of action or create a different marketplace," although he added that so far he has not seen the UDB having a particular impact on pricing.

"Compliance is looking more expensive going into 2025, hence higher bio premia and credit prices," a source said.