The FAME 0 market in Europe is in backwardation into the summer months, despite the seasonal uptick in demand for summer-spec product, with imports expected to dominate the market into the middle of the year.
With supply for FAME 0 -- one of Europe's most widely used and traded biodiesel types -- expected to exceed demand into the summer, the market has adopted a backwardated structure of around $45/mt from prompt physical to Q3 paper levels, highlighting the impact these imports should have.
With the arbitrage for imports from Argentina, Indonesia and Malaysia all open on the prompt, and almost half a million tons of product booked from April to June into Europe, a largely bearish sentiment is looming over the European market.
With some producers in Southeast Asia sold out until June or July, the length in the market looks set to increase into the middle of the year, countering the increase in demand.
"I'm not holding out much hope that we stay here for too long," said a source, anticipating a subsequent fall in prices and contraction in production margins in Europe on these imports, which had been under significant pressure earlier in the year, prompting some European producers to temporarily close production facilities.
With the European Biodiesel Board (EBB) complaint against Argentine imports still under investigation it appears some of the focus on SME (soybean-based biodiesel), which appears to still price in better into Europe, has now moved to palm-based biodiesel (PME) from Asia.
This is especially the case along the curve.
"Q3 is tricky because of this anti-subsidy thing, but for Indonesian PME it should be still OK," said a source.
Another said: "SME investigation is meaning people are looking more at PME. When August comes people will stop booking SME -- people don't really want to take a risk on imports if there is uncertainty."
Prices in Europe for FAME 0 dropped sharply following the reduction in anti-dumping duties against Argentine biodiesel in September, which opened the gates to imports from South America in volumes not seen since the inception of these duties in November 2014.
This decision left the FAME 0 market much longer on the prompt and only a relative lack of imports in March gave prices some space to recover.
Following the removal of most anti-dumping duties against both Indonesia and Argentina in March, even greater imports are expected this year.
"Imports in 2018 will be 1.5 million-2 million mt with both Southeast Asia and Argentina contributing," said a source, who expected the oversupplied state of the market to continue.
S&P Global Platts assessed FAME 0 at $830.76/mt FOB ARA in April, down from $865.79/mt FOB ARA in April 2017, reflecting the increased supply.
This came as the premium for FAME 0 over front-month ICE gasoil futures fell from $386.88/mt to $196.05/mt FOB ARA over the same period, showing the weakness in the FAME 0 market on these higher stock levels.
