EIA: lower use of vegetable oils mix in RD/Biodiesel

The latest EIA data reveals a concerning trend in the biodiesel and renewable diesel sectors, with overall feedstock use plummeting by at least 26.3% compared to January 2024. Soybean oil utilization dropped a staggering 47%, while canola oil experienced the most dramatic decline at 95%. Only tallow bucked this downward trend, as even yellow grease fell by 54%. Interestingly, this decline occurred despite capacity expansion, with renewable diesel capacity increasing by 116 million gallons (approximately 300,000 tonnes) while biodiesel capacity decreased only slightly by 10 million gallons. This paradoxical situation—expanding capacity paired with decreasing feedstock use—strongly suggests that uncertainty surrounding the 45Z tax credit guidance is hampering production decisions.

The market implications are becoming increasingly evident as D4 RIN prices hover around $0.915/gallon, just marginally below the $0.93/gallon observed in February. This relative stability in RIN prices, despite today's announcement by the USDA of nearly $537 million in biofuel infrastructure investment grants, indicates broader market concerns that can't be addressed by infrastructure funding alone. The growing calls for a return to the Blenders Tax Credit (BTC) reflect industry recognition that current incentive structures aren't effectively supporting production volumes. The discussions among industry groups reportedly concluding today may provide some direction, though any substantive policy changes will likely take months to materialize.

The ripple effects of U.S. policy shifts are reverberating globally, as evidenced by the dramatic 80% share price collapse of South Korean biodiesel producer DS Dansuk. At their recent shareholders' meeting, the company confirmed no dividend payments for the second consecutive year despite having 127.3 billion won in retained earnings. DS Dansuk's operating profit plummeted 84% to just 12.2 billion won in 2024, with net profit swinging to a 10.3 billion won loss. Company officials cited "changes in policies in the United States and Europe" as having "reduced the demand for eco-friendly products such as biodiesel made from waste cooking oil, leading to a drop in export prices." The situation has become so dire that DS Dansuk has halted biodiesel production at its Pyeongtaek 2 plant. Similar challenges are affecting Neste's Singapore operations, highlighting how dependent the global waste-based biodiesel industry has become on U.S. incentive structures.

Projections of demand destruction reaching 7-8 million tonnes in U.S. biodiesel/renewable diesel before any intervention seems plausible, though perhaps slightly pessimistic. While the 1 million tonnes per month estimate is still a reasonable baseline, it's worth noting that the industry has historically shown resilience and adaptability to policy uncertainties. The timeline of policy response—with decisions potentially coming before the July Congressional recess—aligns with typical governmental processes, but implementation delays could indeed extend the period of reduced production. The market may also be anticipating some form of retroactive credit provisions, which could explain why production declines haven't triggered more dramatic price movements.

Meanwhile, the European biofuel market faces its own challenges with the ongoing debate over ISCC traceability requirements. The clarification that proposed penalties would primarily affect waste oils or Annex IX items rather than crop-based oils provides some relief to certain market segments. However, as a European producer aptly noted, the EU's tendency to "kick the can down the road" creates persistent uncertainty for market participants. The Northwest European barge spot market remained subdued, with FAME 0 trading at $1,286/tonne (premium over ICE gasoil of +600) as Bean Oil-Gas Oil (BOGO) spread contracted to +308 amid a strong 2.5% rally in gasoil futures. RME traded at $1,316/tonne, while UCOME commanded $1,536/tonne—still $200 below HVO Class IV waste oils reference price, with SAF commanding only a slight premium of $30-50/tonne over HVO Class IV.