European lockdowns mean UCO collections grind to a halt

London — The supply chain for used cooking oil, an important biodiesel feedstock, has ground to a halt due to the lockdown measures taken by European governments to combat the coronavirus pandemic.

The UCO supply chain in Europe is still fairly unsophisticated. Much of the UCO is collected by small companies which purchase it from local bars, restaurants and fast-food chains, most of which have been shut as part of the lockdown measures. The UCO is then taken to a facility, cleaned to remove foreign bodies, such as food. The treated and cleaned UCO is then sold on to a biodiesel producer who will, most of the time, purchase UCO from an up to 300-km (186-mile) radius of its production facility.

The UCO collected in Europe is used to produce UCOME or used cooking oil methyl ester, around 2 million mt of which was produced in Europe in 2019, according to S&P Global Platts data. This represents 15% of European biodiesel demand. UCOME features heavily in the European biodiesel mix particularly in the Netherlands and the UK as a result of the Renewable Energy Directive the overarching scheme used to decarbonize the transport sector in Europe. UCOME is an important part of the biodiesel complex due to its higher greenhouse gas savings of 87% compared with 50 % for rapeseed oil-based RME and FAME 0.

The result of the slump in UCO production, sources said a UCO collector in Germany had stopped collection due to limited availability, as below 3 mt of UCO a day it didn't make economic sense for the company to go out and collect. UCOME producers and collectors will now be depending on UCO already in storage or imports. However, as a source pointed out, UCO does naturally degrade when in storage, so the longer the lockdowns go on, the more difficulty UCOME producers will face in getting hold of feedstock with the required specifications.

Imports from China difficult

UCO supplies can also be imported into Europe usually from China, with the biggest importers of Chinese UCO into Europe being the Netherlands and Spain. China, although now possibly through the worst, has faced its own challenges due to coronavirus. The recent shutdowns there led to major problems in the market with sources saying some Chinese suppliers had declared force majeure. However, the collection of UCO in China is definitely picking up again, market sources say, but the volumes of UCO not produced during the lockdown in China will be difficult to replace because of the way it is produced.

The perceived lack of UCO moving forward has led to talk of some European UCOME producers actively looking at producing first-generation biodiesel, for example RME, sources say. The lockdown of most of the region's catering sector has even led to virgin vegetable oil producers having to recalibrate their production lines, away from the 10-liter bottles used by the catering industry to the smaller 500-milliliter and 1-liter bottles required by the supermarkets.

Diesel demand plunges

However, falling demand for diesel and therefore biodiesel demand could halt production altogether with estimates of biodiesel production falling by 20%.

Sources say that due to the slump in road transportation use caused by the lockdowns, biodiesel producers are reducing output. Platts Analytics sees world demand for diesel in May 9.2% lower on the year, with European diesel demand down 2.6% in the whole of 2020, but these numbers are expected to change. The fall in diesel and oil prices due to the effects of coronavirus virus and subsequent lockdowns as well as the OPEC+ pact falling apart has had a huge impact on biodiesel prices. The price of UCOME has fallen 18.64% since the start of March and was assessed at Eur962.14/mt ($1,038/mt) on Thursday. First-generation biodiesel has also been hit. The RME price was down 24.81% at $735.75/mt and the FAME 0 down 22.68% at $636.75/mt.

Overall, it is a very complex situation, with UCO collections in Europe grinding to a halt and demand for transport fuel plunging. While there is the possibility of UCOME producers switching to producing first-generation biodiesel, sources say German and Dutch mills are sold out of UCOME well into the second quarter. How easy it will be to switch out of those contracts remains to be seen. On the other hand, although the amount of UCO being generated has fallen so has demand for the finished UCOME biodiesel as a result of the coronavirus pandemic.