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European RME biodiesel passes nine-month high on winter demand, strong gasoil

London — The European RME biodiesel blend has hit a more than nine-month high on increased demand for the winter grade product, alongside stronger front-month ICE gasoil futures.

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S&P Global Platts assessed the RME (rapeseed methyl ester) outright price at $1,006.50/mt FOB ARA Tuesday, up $14 from Monday as stronger bids in the market made their presence felt, with buyers looking to secure spot cargoes as the European market moves away from summer blends.

In contrast, FAME 0, the more summer grade biodiesel, fell $6 from Monday to $869.50/mt FOB ARA Tuesday.

This also comes following a period of bullish gasoil, aiding the outright biodiesel prices despite increased stocks in Europe. On December 1, 2017, the last time RME was higher, front-month ICE gasoil futures were assessed at $567.50/mt.

However, this rose to $685.50/mt on Tuesday, leaving the premium for RME over gasoil at $321/mt FOB ARA, from $443.75/mt FOB ARA on December 1.

"Outright RME should still nudge up, there is enough demand in the market," one source said Tuesday, despite the strong backwardation prevalent in the market along the curve.

Despite the uptick in RME demand, however, to offset some of this waning FAME 0 demand, the RME market is currently in backwardation into the end of the year. "RME is down [in backwardation] along the curve on greater feedstock supply, but also the Med is likely to blend FAME 0 if possible in winter owing to cheaper blending economics, so this is lowering RME demand," a source said.

The Mediterranean typically experiences more moderate winters than other European countries, which means its demand for FAME 0 will be greater in comparison.

This backwardation is largely unsurprising at this time of the year, as there is an abundance of rapeseed oil hitting the market following the harvest across Europe.

"People are taking positions into Q4 now when previously it was quite quiet," said a source. "It is easier to take a paper position when you know the rapeseed harvest expectations."

This harvest comes as spot production margins remain wide, further encouraging production as feedstocks are expected to fall. "Margins will stick wide as long as people are there to pay up, given this is unlikely on summer grade [FAME 0] going into Q4, I suspect RME-FAME 0 to jump back out again," said a source.

This was the case on Tuesday, with RME's premium over FAME 0 widening on the day by $20 to $137/mt, the widest level since December. However, this was largely expected in the market, with the RME and FAME 0 October paper swaps pricing at a differential in the region of $135-$140/mt for several weeks.

Despite some clarity further along the curve given the harvest and expected supply/demand balance, the prompt is shrouded in uncertainty.

This stems from the expected decision on anti-subsidy tariffs for imports into Europe of biodiesel from Argentina, due in the next couple of weeks. Should this decision, following a complaint by the European Biodiesel Board in December, result in new tariffs for these imports, it would close the arbitrage from Argentina into Europe for biodiesel.

There is also the potential for retroactive tariffs to be applied for 90 days previously, which could affect some volumes already booked or delivered.

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

--Edited by Jonathan Fox, jonathan.fox@spglobal.com