On March 19, RME Fob ARA and rapeseed oil ddp NWE prices were recorded at the same level (USD 775/mt), illustrating the gravity of the biodiesel market situation. Since the virus outbreak, energy prices have fallen much quicker than vegetable oils, forcing some biodiesel sellers to get rid of positions with a massive loss. As a result, Fame 0° traded USD 35/mt below soybean oil on the same date. This situation can’t last on the supply front, our sources already mentioning this week production cuts at several plants.
The spot activity has experienced a sharp decline, explained by the frantic daily volatility and the complete absence of outlook for the coming weeks. If operators could put a number on the 2020 fuels pools’ collapse, they could anticipate blenders’ need more accurately. But it’s not the case at all. In Italy, some sources mentioned a 60 to 70% fall of the diesel demand but only the official numbers for March will tell whether this is really the case. In our statistics section, we publish a simulation for the German compliance, with two scenarios implying negative growth rates for fuels demand comprised between -25% and -40% for the present and the coming months, assuming the confinement would be over by this summer. Our objective was not to forecast the actual fuel collapse, but rather to understand how biofuels demand destruction would occur under various scenarios. We will continue in the coming weeks to publish these analyses for other major markets.
On the UCO front, imports are still securing a decent level of supply, explaining why the product price also corrected violently. In Europe, the local supply is depleting quickly with estimations of the monthly loss comprised between 15 and 20 KT after all restaurants closed. As the UCOME demand will experience a drop, sources continue to believe the market will remain balanced. Until mid-May, UCOME producers are reportedly covered and from then, only back- to-back deals should occur. Although UCOME margins have decreased by USD150/mt during the past month, they remain at a more than decent level, without comparison with the situation on the 1G front.
Market sources said some buyers were thinking about invoking “force majeure” to refuse delivery of biofuels products. However, each contract is specific, and the legal complexity of the question prevents us from anticipating if it’s going to happen at a large scale or not. In these troubled times, let’s bet that producers and their clients will find common grounds to revise their forward agreements, so they can preserve the quality of their business relationship.
In the coming weeks, we’ll be in contact with ministries and local sources to assess the impacts on the regulatory fronts. Currently, we don’t expect any change within the blending or GHG mandates imposed in 2020, but that could evolve. Our first checks of the French rules showed that only “exceptional difficulties of supply” could lead to the suspension, “for a maximum of 30 days (renewable),” of the obligation to incorporate bio components. For now, the logistics of the fuel markets are still working but if the lock-down constraints are to be extended to the transport of goods, some authorities in important EU countries may call the suspension of blending mandates. We’ll follow those developments very closely.
Fob ARA and rapeseed oil ddp NWE prices were recorded at the same level (USD 775/mt), illustrating the gravity of the biodiesel market situation. Since the virus outbreak, energy prices have fallen much quicker than vegetable oils, forcing some biodiesel sellers to get rid of positions with a massive loss. As a result, Fame 0° traded USD 35/mt below soybean oil on the same date. This situation can’t last on the supply front, our sources already mentioning this week production cuts at several plants.
The spot activity has experienced a sharp decline, explained by the frantic daily volatility and the complete absence of outlook for the coming weeks. If operators could put a number on the 2020 fuels pools’ collapse, they could anticipate blenders’ need more accurately. But it’s not the case at all. In Italy, some sources mentioned a 60 to 70% fall of the diesel demand but only the official numbers for March will tell whether this is really the case. In our statistics section, we publish a simulation for the German compliance, with two scenarios implying negative growth rates for fuels demand comprised between -25% and -40% for the present and the coming months, assuming the confinement would be over by this summer. Our objective was not to forecast the actual fuel collapse, but rather to understand how biofuels demand destruction would occur under various scenarios. We will continue in the coming weeks to publish these analyses for other major markets.
On the UCO front, imports are still securing a decent level of supply, explaining why the product price also corrected violently. In Europe, the local supply is depleting quickly with estimations of the monthly loss comprised between 15 and 20 KT after all restaurants closed. As the UCOME demand will experience a drop, sources continue to believe the market will remain balanced. Until mid-May, UCOME producers are reportedly covered and from then, only back- to-back deals should occur. Although UCOME margins have decreased by USD150/mt during the past month, they remain at a more than decent level, without comparison with the situation on the 1G front.
Market sources said some buyers were thinking about invoking “force majeure” to refuse delivery of biofuels products. However, each contract is specific, and the legal complexity of the question prevents us from anticipating if it’s going to happen at a large scale or not. In these troubled times, let’s bet that producers and their clients will find common grounds to revise their forward agreements, so they can preserve the quality of their business relationship.
In the coming weeks, we’ll be in contact with ministries and local sources to assess the impacts on the regulatory fronts. Currently, we don’t expect any change within the blending or GHG mandates imposed in 2020, but that could evolve. Our first checks of the French rules showed that only “exceptional difficulties of supply” could lead to the suspension, “for a maximum of 30 days (renewable),” of the obligation to incorporate bio components. For now, the logistics of the fuel markets are still working but if the lock-down constraints are to be extended to the transport of goods, some authorities in important EU countries may call the suspension of blending mandates. We’ll follow those developments very closely.
