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European biodiesel premiums display considerable volatility

http://www.chemnet.com   Feb 12,2018 platts
European biodiesel premiums displayed considerable volatility through the past week, eventually rising week on week as tumbling gasoil became the main driver of the market.

Front-month ICE gasoil futures fell $32.75 on the week to a year-to-date low of $578.50/mt.

Bearish vegoils, with CBOT soybean oil at 32.56 cents/lb Wednesday, down 0.44 cents on the week, and a weaker euro, however, softened the blow of the gasoil.

The RME premium over gasoil rose $21 on the week to $292.25/mt FOB ARA, while the FAME 0 premium hit $231.25/mt FOB ARA, up $12.

As a result the RME-FAME 0 differential widened by $9 on the week to $61/mt.

Premiums have reflected the market switching between bullish and bearish sentiment on an almost daily basis.

"The market is all over the place," a source said. This volatility is no longer considered to be due to the uncertainty surrounding the market, which many feel has already been priced in, and is in fact being driven by gasoil and exchange rates.

"It's hard to say whether we will see more volatility -- [it] depends on the flat price of gasoil," a source said.

With premiums under downward pressure from anticipated import volumes and producers concerned that prices are below replacement costs, all eyes are on whether increased demand in the summer, as countries look to meet 2018 mandates, will help support premiums.

"Demand is increasing, that's a fact, but it won't be enough to support prices massively," a source said, adding that large capacities in both Indonesia and Argentina will keep a strong cap on the market.

Looking towards the UCOME prices, there is a lot of pressure to sell in February resulting in much lower prices compared to further down the curve, according to sources.

"With cheaper product in the front month people will go hand to mouth for now," a source said, adding that no one was willing to pay the prices being offered down the curve at the moment

The UK and the Netherlands will likely to look to UCOME in order to reach their volumetric mandates, as it calculates well towards the UK RTFCs and Dutch HBEs.

Germany, however, is expected to look to methane capture PME, as the mid-GHG savings products are thought to price better into Germany.

This expected demand split for UCOME is already being seen in trading activity, sources said. Most product being traded at the moment is on a double counted basis, and of the GHG savings side that is trading, the higher GHG products are being sold off at a discount.

"Many people are buying all they need at the moment and are waiting until summer for the 75%-77% GHG savings products," a source said, referring to methane-capture PME.

On the paper side of the market gasoil prices are also having a significant effect, with the FAME 0 and RME curves strengthening as gasoil tumbles further.

With producers reportedly hesitant to commit to future production, most trading activity is expected to be seen in the spot market. "It is a very odd market-- you are going to see activity in the window [and] then pretty much hand-to mouth stuff elsewhere," a source said, predicting relatively limited paper activity, although paper liquidity is still considered to be good compared to pre-Christmas levels.

Portuguese sales of biodiesel in November were at 23,030 mt, a decline of 3.4% from October and 1.1% on the year, according to data from the Ministry of Energy.

Diesel consumption fell slightly on the month by 0.6% but gained 1.7% from November 2016 at 366,557 mt, bringing the biodiesel incorporation rate to 6.3% on a volume basis, down from 6.5% seen in October and also a year earlier.

From January to November, biodiesel demand totaled 274,279 mt, an increase of 7.4% on the year.

Part of this growth came from an increase in the diesel market which rose by 2.0% year on year at 4.069 million mt.

The biodiesel blending rate for January-November was assessed at 6.7% on a volume basis, up from 6.4% a year earlier.

For 2018, biodiesel consumption is expected to reach 320,000 mt, an increase from 305,000 mt estimated for last year.

The rise is due to the increase of the biofuels mandate this year to 9.0% on an energy basis from 7.5%, with the sub-target of 2.5% for ethanol remaining unchanged, and a growing diesel market.
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