European winter grade biodiesel prices hit a 19-month low Thursday due to a falling oil complex, the seasonal reduction in demand and recent structural changes in the local biodiesel market, market sources said.
Platts assessed standard RME, biodiesel locally produced from non-certified rapeseed oil, at $1,187.50/mt Thursday, the lowest since October 8, 2010. Compared with the average of May 2011 current prices represent a 20% year-on-year drop. The price fall was both due to lower benchmark gasoil prices and lower RME premiums. The front-month ICE gasoil contract was assessed at $871/mt at Thursday's market close and RME's premium to ICE gasoil was $320/mt, compared with over $600/mt at the end of May 2011.
RME prices began their downward move at the end of 2011, and even did not even gain support during the winter, when consumption of RME usually picks up. In summer smaller volumes of RME is needed because it is blended with other biodiesel grades.
Demand erosion, however, affected most biodiesel grades, with sales reportedly hampered by high stocks and substitution with alternative bio-additives.
"The market is completely illiquid, and this is only partially linked to the global economic problems. There has been a wider acceptance of double-counting biofuels and HVO [hydrogenated vegetable oils], which reduces consumption of traditional biodiesel," a German biodiesel producer said.
The double counting system allows for biofuels produced from wastes, residues and by-products to be counted twice toward countries' biofuels blending mandates.
With a relatively expensive feedstock, rapeseed oil, demand for RME is also being hit by imported biodiesel.
"Argentinian and Indonesian biodiesel is effectively subsidized and it is impossible for a European producer to compete with it. Besides, both countries are on the Generalized System of Preferences and thus have duty-free access to the EU markets," a trader said.
Sources also said the lack of uniform transposition of the EU Renewable Energy Directive across the EU member states, as well as failure to provide clear and transparent mechanisms for traceability of sustainability certificates were also bearish factors.
