London — The premium of FAME 0 biodiesel to front-month ICE gasoil futures hit an over-30-month low in Europe Wednesday after dropping $14.75 on the day to $275.25/mt as SME imports combined with falling feedstock prices weighed on the market.
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Front-month soybean oil was down 0.27 cents on the day and 0.78 cents on the week to 33.17 cents/lb, and rapeseed oil followed a similar trend.
Gasoil also fell $9.75 on the day to $545.50/mt, which pushed the FAME 0 price down $24 on the day to an over 16-month low of $822/mt.
RME prices followed a similar course, with the premium to gasoil narrowing $14 on the day to $426/mt, keeping RME's premium to FAME 0 at $150/mt.
SME imports from Argentina continue to flow into Europe, albeit at a slower pace, with 30,000 mt heard to be confirmed so far in December.
However, recent buying appetite for FAME 0 suggests that the additional volumes could be absorbed by the growing markets for various blends of FAME, including -5 and -10, which are also diverting some demand away from RME.
The FAME -5 market in particular is flourishing in France, being a much more competitive option to RME and with the spec being adequate for French winter.
As a result, sources said that some pressure could be expected on RME versus some upside for FAME 0, as reflected on the forward curve, with FAME 0 going into contango into Q2, while RME remains backwardated.
However, this is perhaps something more likely to happen next year, as end-of-year demand is now slower, with most market participants covered for 2017.
In the meantime, sources see fundamentals as largely priced in at this stage, leaving underlying moves in gasoil and vegoils to be the main drivers for premium volatility for the rest of the month.