The RME-FAME 0 differential opened to the widest level in almost nine months Wednesday at $77.25/mt, surging from $32/mt the previous day as RME strengthened on support from vegoils while FAME 0 fell on lower demand, uncertainty over the future of antidumping duties and higher activity on the sell side of the market.
The outright price for RME (rapeseed methyl ester) reached a more than seven-month high Wednesday at $1,000.75/mt FOB ARA on strong vegoils and bullish gasoil, up $16.50 from Tuesday.
In contrast, the FAME 0 (fatty acid methyl ester) outright price lost $28.75 to $923.50/mt.
This strengthening in RME came as rapeseed oil in Europe continued to offer support for the biodiesel market, with the crop harvest expected to be lower than anticipated earlier in the year.
The outright price has also been supported by rising front month ICE gasoil futures, which rose $11.25 from Tuesday to a four-month high of $495.50/mt Wednesday on sentiment driven by the massive disruption caused by Hurricane Harvey on the US Gulf Coast.
With stronger vegoils narrowing production margins for RME, prices have moved upwards, in order to accommodate these tight margins, with general market consensus stating that around $70/mt is needed for production margins.
Rapeseed oil was heard pegged around $870/mt FOB ARA Wednesday, from $855/mt on July, 28, reflecting the bullish trend that has underpinned much of the upward movement in RME in recent weeks.
Bearish sentiment dominated the FAME 0 market Wednesday, and the market sentiment on the removal of antidumping duties began to take center stage, having resulted in a firm backwardation in the market in recent weeks.
"FAME 0 is starting to fall, the backwardation was steeper and it was just rolling along, now it is falling," a source commented.
Should the antidumping duties be cut on September 7, having been delayed from July 27, increased biodiesel supply is expected to reach the European market from Indonesia and Argentina.
These antidumping duties have been imposed on biodiesel imports from Argentina and Indonesia since November 2013. Imports from Indonesia are typically palm-based biodiesel while from Argentina they are soybean-based.
FAME 0 demand is also expected to fall heading into the winter, with some of this demand beginning to move to RME, adding to the upward pressure.
This occurs due to the preferential cold weather properties for RME, which are desired by blenders and end-users in winter, hence the differential tends to widen.
Antidumping duty sentiment is having a greater effect than the demand moving, as seen with the RME-FAME 0 differential at $5/mt on August 30, 2016.
