COMMODITIES 2025: European renewable diesel market bullish on regulatory support and rising demand

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 renewable diesel sector is expected to expand in 2025, driven by a combination of evolving regulatory landscape fueling demand for low-carbon fuels and increased production capacity across Europe. However, uncertainty in the feedstock markets and elevated prices will continue to be key challenges, according to specialists.

"Markets are volatile, but with the recent developments in mandates, we are more bullish for 2025," one industry source said.

According to S&P Global Commodity Insights, the consumption for renewable diesel in Europe is projected to increase by approximately 26% in 2025 compared to 2024 levels at 4.28 million mt, while the output is expected to grow by around 16% to 4.35 million mt, driven by expansion of renewable diesel production capacity across Europe.

Anti-dumping duties to support domestic production

A significant development that will shape the European HVO market in 2025 is the EU's anti-dumping duties on Chinese biodiesel and HVO. In response to the influx of low-priced and mislabeled product from China, the EU commission imposed provisional tariffs on Chinese biodiesel and HVO imports, effective from August 2024 with definitive measures expected in February 2025.

The counter measures were welcomed by European players and brought much needed confidence in the market. This is also expected to boost domestic HVO production but with muted flows from China, prices are expected to remain elevated.

"With reduced flows from China following the ADD, the demand is expected to remain strong for domestic material which should support markets," a market source said.

Ticket rollover limits and rising mandates

The mandate and policy changes announced by the EU commission and member states in 2024 are expected to define dynamics in the coming year. In Germany, the decision to halt ticket rollovers for 2025 and 2026 is expected to encourage production and stimulate demand for renewable fuels. Similarly, the Netherlands has enacted its own measures to curb certificate stockpiling (HBEs) by reducing the rollover limits.

The heightened commitment to renewable fuels is further reflected in rising mandates. The Netherlands already raised its renewable fuel mandate to 28.4% for 2024, with the target set to increase to 29.4% in 2025.

"Mandate changes will impact markets next year including Germany's decision to stop ticket rollover and capped carryover of tickets in Netherlands. Meanwhile we are also seeing mandates increasing. What we have seen recently with the Netherlands is just a taste of what's to come. So that is pointing to another bullish factor for next year," an analyst said.

Additionally, Sweden's plan to ramp up its GHG emission reduction targets for 2025 from 6% to 10% is also being seen as a step in the right direction.

"Germany in particular is key, if the amount of advanced FAME used in Germany reduces significantly it will signal an uptake in HVO demand. However, if the Chinese stuff gets replaced by other sources of Advanced then the uplift won't be as big. But other countries will help as well, mostly France, Spain, Italy, with its HVO mandate, and Sweden with its re-growing targets," a consultant said.

Uncertainty in UCO markets amid changing dynamics

The roll-out of sustainable aviation fuel mandate both in the EU and UK starting at 2% in 2025, alongside the implementation of the FuelEU Maritime regulation from Jan. 1, 2025, and rising biofuel blending targets in member states is projected to boost demand for used cooking oil. This in return is expected to intensify competition for the key input as multiple sectors will vie for it to meet their decarbonization goals.

In light of these developments, sources held mixed opinions on the supply and demand dynamics of UCO, with one source noting that the increased competition for feedstock may support prices next year.

"There should be general tightness of feedstocks at least until H1 2025, not just with UCO but also with veg oils," the same source added.

While another source said, "I don't see shortage in 2025. Overall diesel and gasoline consumption in EU is declining so I think the feedstock market will remain fairly balanced."

The US government's stance on Chinese UCO imports will also play a key role in shaping feedstock dynamics in Europe. According to China's customs data, the US imported 160,141.92 mt of UCO from China in August 2024, marking a 60% increase from the previous month.

As of Dec. 17, Trump has already vowed an additional 10% tariff on Chinese imports. If enacted, it could redirect Chinese UCO flows from the US to Europe.

"The main question is what Trump will do. If he imposes tariffs on UCO imports, then the flows will be redirected to the EU and will probably increase supplies and push prices down a bit. It's still a little uncertain based on what US will do moving forward," a trader said.

Additionally, UCO an important feedstock, may also become more expensive due to China's recent move to remove export tax rebates on key commodities including UCO.