London-Stocks of both UCOME and TME biodiesel in Europe have risen in recent weeks, sparking bearish sentiment about the remainder of the year.
Stocks of used cooking oil and tallow-based biodiesel have risen despite the backwardated market and weaker euro dominating the market and limiting imports into Europe.
The euro fell against the dollar to $1.1413 on Monday, its lowest for over a year and this is meaning that the landing price for second-generation product from outside Europe is higher than the domestically produced product.
The currency impact is felt to a greater degree in the waste-based biodiesel market than first-generation biodiesel as sales in Europe are conducted in euros, meaning currency exposure adds risk to these markets with imports into Europe in dollars.
Despite the weaker euro limiting imports into Europe, prompt UCOME prices have fallen, tracking FAME 0 prices along the curve. UCOME with 90% greenhouse-gas savings fell to Eur860/mt ($980/mt) FOB ARA Monday, down 7.0% on the year, "UCOME is bearish as the premium over FAME 0 is quite high -- there is still plenty of product in Europe," a source said. FAME 0 was assessed at $893.50/mt on Monday.
The situation also appears similar for the TME market in Europe, with stocks beginning to mount as the end of the year approaches. "Lots of TME still available for September and October loading but people can't afford to wait until the fourth quarter due to summer spec," said a source.
This means that demand for spot cargoes is much greater than for those further along the curve as nobody wants to run the risk of being stuck with summer-grade product in storage for the winter months, for both UCOME and perhaps more so for TME.
Blending for these second-generation biodiesel blends has increased in recent weeks, especially in Germany where larger quantities of high greenhouse gas saving biodiesel are consumed to meet the domestic mandate.
January-May biodiesel demand in Germany rose 12.9% on the year to 946,224 mt, the latest data from German export control agency BAFA showed. This was to be expected because UCOME and TME prices were lower on the year.
However, despite this uptick in sales, stocks have continued to mount, with buyers holding off as much as possible to maximize the benefit from the backwardated FAME 0 market in Europe, over which UCOME is priced.
"To be honest the market doesn't help when it [UCO] is constantly in a backwardated position," said a source, with this structure also adding to the backwardation in UCOME along the curve.
FAME 0 is heavily backwardated along the curve, reflecting waning demand into the winter, but also rising stocks as imports of PME and SME continue to flow into Europe.
This has become an increasing issue with low water levels along the Rhine, a key artery for barge traffic in Europe, preventing full barge loading and also pushing up barging costs, leaving market participants reluctant to do deals on the prompt.