Chinese UCO Flows to US Revive—But Is It Really About Biofuels?

Imports of Chinese used cooking oil (UCO) into the United States have surged in recent weeks with the Trump tariff pause of 10%, with over 100,000 metric tons booked for July and August arrival—an unusual move considering that fuels produced from imported UCO no longer qualify for the 45Z tax credit starting this year. Yet the margin is compelling: FOB China UCO is offered around $1,080/MT, while spot values on the U.S. Gulf Coast hover near $1,444/MT. After freight and discharge costs (~$165/MT), traders are landing product at $1,247–1,262/MT, locking in gross margins of $182–197/MT. With these trades occurring outside the renewable fuel compliance system, the likeliest scenario is that the material is redirected into domestic feed or industrial markets—pressuring U.S. UCO values while delivering risk-free spreads. These imports may also serve a secondary purpose: to destabilize the domestic waste oil complex ahead of a critical tariff review deadline on August 11.

In a parallel shift, India has booked at least 50,000 MT of soybean oil from China for Q3 shipment, marking the largest bilateral vegoil deal between the two nations on record. With Chinese domestic crushing still weak and domestic demand sluggish, Chinese exporters are offloading excess oil at competitive prices. Indian refiners, typically reliant on South American and Black Sea origins, appear to be exploiting that surplus, helped by competitive freight and prompt availability. The timing could not be worse for Brazilian exporters: FOB Paranagua soyoil values are already in collapse, with September/October paper offered at –$550 to –$570 vs CBOT futures, and OND offers as low as –$650 to –$900. The China-India flow is structurally bearish for Brazil's forward book and may worsen if Chinese volumes become recurring.

The soybean oil forward curve is also flashing instability. The September 2025 vs September 2026 (ZLU25/ZLU26) spread has widened to +2.69¢/lb, the steepest inversion in over a year after the Sep/Dec widened to +0.51 from 0.28 last week. With U.S. crops in excellent condition, soymeal under pressure, and no China demand, the curve appears technically stretched. Traders are monitoring this for potential reversion trades, especially if speculative length retreats.

Soyoil Sep25/Sep26 spread

Physical biodiesel margins in Northwest Europe remain tiered. UCOME leads with ~$220/MT gross margin, followed by RME at ~$200/MT, supported by steady €1,045/MT rapeseed oil offers. FAME 0 is barely above breakeven, with ~$33/MT margin despite firming flat prices. BOGO continues to widen—now over $547/MT—confirming soy-linked producers remain under feedstock stress. D4 RINs offer little help, still stuck around 125¢.

Gasoil backwardation has eased modestly. ICE August settled at $711.50/MT, with Q4 barrels near $675/MT. Marine UCOME B30 ARA is stable at $815–825/MT, while Singapore B24 hovers near $685–695/MT. However, geopolitical risks—especially the August 1 tariff decision and Trump’s 10-day ultimatum to Russia—keep forward visibility probably more explosive than market is reflecting.

In summary, Chinese UCO imports into the U.S. may be chasing feed margins more than fuel credits, while Indian purchases of Chinese soyoil add bearish weight to an already oversupplied FOB Paranagua market and Argentine exporters. With curve structure overbought and trade flows realigning, feedstock sourcing—not compliance pricing—remains the primary driver of opportunity and risk.