The European RME premium over front-month ICE gasoil fell to an over 20-month low Tuesday of $385/mt, down $19.75 from Monday, as FAME 0 slipped to an over 16-month low of $368/mt on high stocks and falling benchmark vegetable oil prices.
European stocks of both RME and FAME 0 have remained high in recent weeks, sources said.
Front-month CBOT soybean oil prices fell 0.18 cents on the day Tuesday to an over eight-month low of 31.20 cents/lb. This has been the main driving force behind the drop in biodiesel prices in recent weeks as other vegoils have tracked it lower.
ICE gasoil fell $1 to $477.50/mt Tuesday, but the greater fall in the soybean oil market left the soybean oil-gasoil differential (BO-GO), an indicator of biodiesel market strength, down $3.22 from Monday at $193.09/mt.
In addition, demand for RME has continued to wane in line with the need for its better cold qualities, taking its premium to FAME 0 down with it. As a result, the differential slumped $17.75 on Tuesday to $17/mt, the narrowest for almost seven weeks.
Despite the expected seasonal increase in demand for FAME 0, the market remains in a backwardated structure because market participants say they think this will be offset by greater supply further along the curve as has been the case in previous years. With high PME stocks at this point and the possibility of the arbitrage from Southeast Asia opening during April, this trend looks set to continue in 2017. Global vegoils are also backwardated down the curve and, with the rapeseed harvest due in July, greater supply in Europe is expected toward the latter half of the second quarter and into Q3.
Lower RME demand over the summer months has resulted in that market becoming backwardated too, with bullish sentiment on gasoil further fueling both backwardations.
