EU biodiesel prompt price spreads between RME and FAME zero have blown out to their widest since late November last year, reflecting the seasonal shift from summer to winter grade biodiesel in the European market. But unlike previous years the widening of the spread contrasts with a sharp tightening in the nearby price spread between European rapeseed oil and southeast Asian palm oil, the main constituent feedstocks of EU FAME zero.
Over the past month, RME FAME zero spreads have moved away from default summer levels where they have hovered close to parity. Monday’s spreads hit $107.50/t, the widest seen since 26 November 2014. But intergrade RME/FAME zero spreads were unable to maintain their momentum through the rest of last winter, averaging just $48/t from the end of November 2014 until the end of February 2015. Spreads between a well-supplied European rapeseed oil market and Malaysian palm oil meanwhile averaged $146/t over the same period.
This year rapeseed oil/palm oil spreads have shrunk $100/t from their late August highs of over $330/t as EU biodiesel has responded to its own seasonal demand signals, although spreads remain well up on year-ago levels as the EU’s shrunken rapeseed harvest contrasts with bumper southeast Asian palm oil exports. Wide discounts for palm relative to EU vegoils have already triggered an upswing in shipments to the EU in the first half of this year. June imports surged 25% MoM and 55% YoY. June palm oil prices in Malaysia average a $196/t discount to rapeseed oil, a spread which has surged another $60/t to average $255/t from 1 July to date.
But concerns over the effect of smog and El Nino on southeast Asian palm plantation yields have since triggered worries that palm output could tighten, giving additional impetus to a palm market already seeing its overseas sales buoyed by weak domestic currency, and pushing palm prices to their highest in two months. Fresh October palm output data should give the palm market its next obvious directional steer. Short term signs of a build in regional stocks could be offset by signs of a further slowdown in yields and pending output after Malaysian data for August showed the country’s palm plantation yields starting to stall, down 5% YoY.