Bio Paper Premiums Defying Fundamentals

It’s been a quiet trading period with May holidays dampening market activity across Europe and Asia, but some key trends deserve attention. The BOGO benchmark fell sharply today—dropping more than a full standard deviation to +459. Despite this, physical barge premiums in ARAG remained resilient. F0 traded at +691 over ICE gasoil, RME followed closely at +701, and UCOME, though quieter, held firm at +825. This persistence of high physical premiums—despite a softer BOGO—suggests the market is ripe for a correction.

Of particular note is the continued surge in paper trading activity. In recent weeks, each of the RME and F0 paper contracts has exceeded 200,000 tonnes of open interest per day, while UCOME paper also surpassed that level in week 18. This divergence between active financial trading and a more stagnant physical market underscores both hedging strategies and speculative positioning. Yet, the scale of paper activity increasingly looks disconnected from physical fundamentals, raising the likelihood of a premium adjustment.

In the feedstock space, U.S. soybean oil markets reflected deepening uncertainties. The N/U spread, which had traded at +0.21 cents on April 30, has now flattened to near even money. This suggests a carry structure is beginning to develop as Washington policy chaos continues. Congressional discussions over both the Renewable Fuel Standard (RFS) and the 45Z Clean Fuel Production Credit are heating up, with focus on market stability, feedstock fairness, and consumer costs. No sweeping changes have passed, but 161 Small Refinery Exemption (SRE) petitions are hanging over the market, adding to the uncertainty.

Turning to U.S. biodiesel trade, the latest Census data show March 2025 imports dropped 32% month-on-month to just under 15,000 metric tons—among the lowest levels in nearly a decade. At the same time, exports to Canada have increased but remain modest in absolute terms. Canada’s steady demand, fueled by low carbon fuel standards, is providing a limited but stable outlet for U.S. producers facing domestic regulatory headwinds. Notably, the Canadian International Trade Tribunal has closed its inquiry into allegations of U.S. renewable diesel dumping, removing a potential barrier to these exports.

Meanwhile, broader trade policy continues to evolve. The U.S. has finalized a phased port fee regime for Chinese-linked vessels, starting in October 2025 and escalating annually through 2028. The final framework addresses industry concerns by clarifying who pays, how often, and what exemptions apply. While this development is less immediately impactful for biofuels markets, it reflects the broader geopolitical risks that traders are now forced to monitor closely.