European biodiesel premiums fall to 2-year lows on gasoil rally

European biodiesel premiums fell to two-year lows March 3 as underlying gasoil prices extended their rally amid the escalating war in the Middle East, with market participants saying the move reflected mechanical price adjustments rather than fundamental demand shifts.

"More clarity on the market can be expected as the week goes on, as people will have to take or go out of positions eventually," an Austria-based biodiesel trader said.

ICE low sulfur gasoil front-month futures surged $126.75/mt, or 14.4%, day over day, before settling at $1,010.25/mt, driving biodiesel premiums sharply lower. The price of the contract is up 34.3% from Feb. 27, before fighting started in the Middle East at the weekend.

Analysts said the conflict had injected a risk premium into crude oil markets due to concerns over potential disruptions to the Strait of Hormuz supply route, a key corridor for global petroleum shipments.

Rising crude oil prices tend to strengthen the economics of renewable diesel and biodiesel, which compete directly with fossil-based fuels.

Waste, crop-based premium reversal

In a relationship shift, RME premiums traded above UCOME premiums day over day, reversing the relationship between the two -- a trend last seen after the German Federal Cabinet approved the Renewable Energy Directive III on Dec. 10.

Platts, part of S&P Global Energy, assessed the UCOME FOB ARA premium to ICE LSGO down $161/mt day over day to $381/mt, a 29.7% decline. The last time value was lower was on 12 Feb. 2024 at $364/mt, reflecting a two-year low.

The UCOME paper structure widened to $1.75/day in contango from $1/day, as traders avoided prompt exposure amid gasoil volatility.

RME premiums were assessed at $394/mt, down 21.8%, or $110/mt, day over day. The last time value was lower was on Aug. 15, 2024, at $391.25/mt, reflecting a one-and-a-half-year low.

FAME 0 premiums fell to $314/mt, down $138/mt, or 30.6%, the most dramatic day-over-day decline among premiums. The last time value was lower was on March 19, 2024, at $315/mt, a two-year low.

"Gasoil is crazy today. Both [are] going in the opposite direction," a vegetable oil trader said, pointing to bearish premiums and rising gasoil prices.

Blending economics unchanged

Market participants noted that fundamental blending economics remained largely unchanged, with feedstock prices holding steady.

In the waste-based segment, traders noted that flat prices remained largely stable as the premium adjustment compensated for higher gasoil values.

"The premium adapts to gasoil. If you look at the flat price, UCOME is barely changing," a Switzerland-based biodiesel trader said.

Platts assessed the UCOME FOB ARA outright at $1,366.25/mt, down 3.3% day over day.

"What drives feedstock demand is not the UCOME differential but the UCOME flat price," the trader added.

The trader added that lower premiums could theoretically stimulate additional blending demand, but mandate-driven requirements and blend-wall limitations would likely prevent a significant uptick. "When you are limited by a blend wall, is there more space? I doubt it," the trader said.

Market liquidity was notably thin across biodiesel categories, with participants reporting wide bid-ask spreads in the first-generation biodiesel market.

"The market is really far apart with no real discussions," an RME producer said. "Looking at the front [month], there is ... a $100 bid-ask spread."

Feedstocks markets steady

Meanwhile, European used cooking oil markets remained steady as traders adopted a wait-and-see approach.

"We haven't seen it yet, but I fully expect prices to go up a bit due to [the war in the Middle East]," a Sweden-based feedstock trader said.

Platts assessed FOB ARA used cooking oil at $1,200/mt, marking more than a month of stability since Jan. 28.

"It is hard to determine what is going to happen," said a Netherlands-based feedstock trader. "There is a dark definition, but [I] haven't seen any changes to prices at the moment."

In Asian markets, participants were also holding off.

"The market is chaotic today; most people are in wait-and-see mode," said a China-based trader.