London — The European premium of RME over FAME 0 soared to an over five-year high Friday as the RME price rose to its highest in over a year on prompt tightness and bullish vegetable oils.
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The RME-FAME 0 differential widened as FAME 0 remained under pressure due to the increased SME imports from Argentina, rising to $181.75/mt, its widest level since November 11, 2012, and the second widest since S&P Global Platts began assessing European biodiesel.
This relationship, between RME and FAME 0, typically widens into winter, because of RME's better cold qualities, meaning demand shifts to RME from FAME 0 market, and RME trades at a greater premium to FAME 0.
This has been further compounded by SME imports which have pushed down the FAME 0 price.
The RME market has been tight in recent weeks due to low water levels along the Rhine hindering the ability to transport rapeseed to the Amsterdam-Rotterdam-Antwerp hub for crushing, causing the price to rise.
The rise in the price has been further compounded by bullish vegoils, following the trend in front-month CBOT soybean oil futures which rose 0.53 cents to 35.00 cents/lb Friday.
Market participants say they expect the differential to narrow as the tightness in the RME market eases.
This comes as the logistical issues begin to fade, with Rhine water levels at the key reference point of Kaub in Germany hitting 1.84 meters at 0400 GMT Monday from 1.28 meters a week earlier.
Water levels below around 1.50 meters mean barges have to be more lightly loaded.
The effect of the rising level of the Rhine is not expected to boost RME supply immediately because of the time needed to deliver the rapeseed to market and RME production time.
This means the market is becoming increasingly backwardated into December as extra supply is expected to have hit the market by then.
A good harvest of rapeseed in Europe and a high canola harvest should make production margins attractive to producers, stimulating output.
The FAME 0 market, however, appears to be in a period of over-saturation, which looks unlikely to change soon because of the continuing influx of SME imports into Europe.
With FAME 0 trading below landing prices for SME, market sources have expressed concern as to whether the market can remain at this level.
"A lot of the stuff that has hit shores was booked before at more attractive discounts," a source told Platts.
With FAME 0 in a contango from January onward, when SME can be less readily used in Europe, and RME in a firm backwardation along the curve, the premium of RME over FAME 0 is expected to contract despite the onset of winter, sources said.