The European Commission's decision on the future of anti-dumping duties on biodiesel imported from Argentina and Indonesia is set to be announced Thursday, potentially ending the measures that have been in force for nearly four years.
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The European Union imposed anti-dumping duties on Indonesian and Argentinian biodiesel in November 2013, curtailing the flow of Indonesian biodiesel to the bloc.
Anti-dumping duties imposed on individual Indonesian biodiesel producers range between 8.8% and 23.3%.
The European Union General Court ruled on September 15, 2016 that anti-dumping duties against Indonesian and Argentine biodiesel imports should be ended, setting the scene for a shake-up of global biodiesel trade flows.
The ramifications of these cuts would be to allow increased imports into Europe, potentially at a cheaper level than internal European production.
This is the reason for the introduction of the duties in the first place.
Before the punitive duties were imposed, Argentina and Indonesia were both significant exporters to the EU.
The cap on crop-based biofuels limiting consumption potential from imports of virgin vegetable oil (VVO) biodiesel and the greater prevalence of waste-based biodiesel and hydrotreated vegetable oil in Europe compared to 2013 created an unsustainable environment for imports post-2020 into Europe, said some European sources.
With an estimated 8 million mt of capacity for HVO expected to reach the market by 2020, some sources anticipated the era of VVO-based imports to be short lived.
There is also the RED II (Renewable Energy Directive) proposals in Europe that will govern the use of biofuels post 2020.
These include obligations to blend a minimum level of advanced biofuels, starting at 1.5% in 2021 and rising to 6.8% by 2030.
But there is also a proposal for phasing out food and feed crop-based biofuels from a maximum of 7% energy contribution in 2021 to 3.8% by 2030, impacting potential trade flows of SME and PME.
The general trend of narrower spreads between rapeseed oil-based RME biodiesel and summer blend FAME 0 in each of the summers since 2013 highlight a potential lack of blendstock alternatives to locally-produced RME.
Traders in Europe say the cuts to these duties will provide further liquidity in the market as a result of cheaper imported palm-(PME) and soy-based (SME) product to potentially undercut European producers and displace some RME from the blend mix.
European traders are viewing the scenario as opening up opportunities in the biodiesel space, whereas the producer view is less optimistic.
A source in Europe said that should these duties be removed, it would "kill European producers."
The expectation of some kind of softening of the duties has left the backwardation in the European biodiesel markets much steeper.
"Some of the FAME backwardation could be because people are expecting the ADDs to be removed," said a source as the backwardation widened.
"With October trading at $370/mt today, FAME will just drop, that level is almost $150 from the prompt," said another source this week, highlighting how steep this structure is.
These proposed cuts should encourage exports from Indonesian producers as soon as possible, with a producer commenting: "Naturally we would be looking to export, since it's a priority to export [for us]."
This is diametrically opposite to the Malaysian view, with producers concerned at being priced out of the market. "[This] will be a critical time. The market will turn left or turn right," said a Malaysian producer.
With the removal of the duties, Indonesia is expected to be much more competitive in comparison to Malaysia, due to the larger capacity and lower logistic costs.
This has cast a shadow over much of the Malaysian market, with many participants expecting the punitive measures to go, greatly reducing the competitiveness of Malaysian PME exports.
But some Asian market players say Argentinian biodiesel (SME) will be more competitive than Indonesian PME, and therefore Argentina will most likely take the main share of the European market.
These rulings come despite a negative view of palm oil across certain regions of Europe, with members of the European Parliament voting on April 4, 2017, to introduce a single certification scheme for palm oil entering the EU market.
They also voted to "phase out the use of vegetable oils that drive deforestation by 2020."
Other European countries have taken hard stances against imports of palm oil, and palm oil-derived products, such as the vote to ban palm-oil based biofuel (PME) by the Norwegian parliament in June 2017.
Another focus for the European markets are those with GHG savings-based mandates, such as the German market.
In this scenario, the higher the GHG savings, the more valuable the product, as it counts further towards the mandates.
The question for European market participants is whether the product imported will be of high enough savings to compete with current European-produced biofuels.
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--Edited by Jeremy Lovell, email@example.com