Diverging fundamentals in the international vegetable oils and seeds markets have finally started to ripple through to spot prices in the European biodiesel market. Southeast Asian palm prices have sold off particularly hard as Chinese economic storm clouds have accelerated the country’s stockmarket drop, with palm futures posting a 25% loss since the start of August as questions over China’s ability to sustain its import appetite have become increasingly pressing. Benchmark US bean oil has kept its losses to around 12% over the same period. Prompt European rape oil meanwhile has managed a nearly $10/t gain since the start of August as the slew of downbeat news on international rapeseed and canola harvests has continued. Unlike the net long southeast Asian and Americas palm and soy production centres, Europe remains a rapeseed importer, with the bulk of Europe’s domestic output consumed as biodiesel feedstock.
Tuesday’s trade saw spot ARA physical spreads between rapeseed based RME biodiesel finally start to pull away from FAME zero to drag the European market’s main intergrade spread to $40/t for the first time since the beginning of June. During the interim period price spreads between FAME and RME have held significantly below $20/t, even as spreads between European rapeseed oil and southeast Asian palm oil have widened towards $340/t compared to an annual 2014 average for the spread of $150/t. September paper RME/FAME spreads on Wednesday followed the previous day’s drift in intergrade direction to widen to near $50/t. The spread traded at $30/t on the 21 August.
Cheap palm oil will be particularly alluring for southern European biodiesel producers able to accommodate palm’s poor CFPP values until later in the year. Processing palm into biodiesel inside Europe avoids the 6.5% EU import duty otherwise levied on Malaysian biodiesel imports.
MS – 26 Aug 2015