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FAME 0 biodiesel passes 3-month low of $874.25/mt as stocks mount, despite summer demand

New EU biodiesel greenhouse gas calculations come into force

A change in the greenhouse gas calculation methodology for the EU biodiesel market came into effect Friday, leading to some uncertainty in the market and hitting liquidity in both paper and physical trading.

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The new rules mean all biodiesel that contains methanol in the supply chain shall have a reduction in GHG savings associated with them, causing many producers to recalculate their savings offered.

"From September [1], all manufacturers should have a new GHG calculation, so we have assumed that all of their GHG must reduce about 5%-6%," a market source said.

The new calculation has a large impact in countries such as Germany where biofuel usage is mandated on a GHG savings basis, rather than as a volumetric basis.



In cases such as this, more biodiesel will need to be blended to reach the GHG savings mandates in place, leaving other forms of biofuels, such as HVO (hydrotreated vegetable oil) and fuel ethanol more competitive in comparison, on a GHG savings basis, though pricing will still remain a key factor in biodiesel uptake.

Demand for biodiesel was expected to rise across Europe, as more will be needed to satisfy the mandates.

"Since more biodiesel must then be blended in order to achieve the blend obligation, it should have effects on availability and make biodiesel even more expensive," a producer said.

The new calculations have caused some issues in the market, with questions arising surrounding term contracts that have been negotiated for specific GHG savings that can no longer be met.

"People have had to renegotiate some contracts," another source said.

In the UCOME market, demand for high GHG saving product has increased sharply in recent weeks as, with GHG savings due to fall, the product was becoming increasingly valuable and also limited.

UCOME bids were heard at a premium of $180/mt over RED FAME 0 for 93% GHG savings on a FOB ARA prompt loading basis on Thursday, up from $155/mt a week earlier.

The increase came as FAME 0 fell on the prompt, to $931.50/mt FOB ARA from $959.50/mt over the same period.

"The UCOME factor over FAME 0 is the strongest for 2017 so far," said a source, as bids reached a factor, or ratio, of 1.19 over RED FAME 0 at the end of August.

With uncertainty looming over the market surrounding the potential cuts to the antidumping duties, which have been imposed on imports from Argentina and Indonesia since November 2013, the sentiment driving lower liquidity was being further exacerbated.

Should the antidumping duties be cut on September 7, having been delayed from July 27, increased biodiesel supply was expected to reach the EU market from Indonesia and Argentina, hence the wider RME-FAME 0 differential, at $77.25/mt on Thursday, the widest level for nearly nine months.

The lower FAME 0 has been largely caused by this uncertainty, as seen with the RME-FAME 0 relationship at $5.25/mt on the last day of August 2016.

--George Griffiths, george.griffiths@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com