Europe’s Paper Frenzy Meets Waste Oil Uncertainty

Late in week 40, European biodiesel markets saw an explosion of paper trading with close to 200,000 tons exchanged across UCOME and FAME 0 contracts, highlighting renewed positioning before October ICE gasoil expiry. Monday’s ARAG window remained active with flat prices easing in line with gasoil. RME traded at $1,425/mt while UCOME cleared at $1,478/mt, keeping the UCOME/RME premium near $53/mt. The UCOME/FAME 0 spread widened further to $138/mt as physical interest in waste-based grades continues to run strong.

Gross replacement margins remain healthy: November RME at $162/mt and FAME 0 near $89/mt basis NWE soyoil, which still trades about €10/mt below rapeseed oil. UCOME holds a $228/mt gross margin — and even with a $200/mt GHG premium versus RME, the $137/mt spread still looks attractive.

The macro backdrop remains fluid. ICE gasoil’s Oct/Dec backwardation has narrowed to +$11/mt as flat prices soften ahead of expiration, confirming that Europe seems able to operate without Russian diesel flows. Replacement barrels from the Middle East and PADD 3 should fill the gap as refinery maintenance winds down. BOGO firmed to +$457/mt, up almost 2%, tracking soybean oil’s bounce as U.S. harvest progress and China’s absence keep futures volatile.

In the physical window, HVO Class 2 flat price surged to $2,622/mt, narrowing the gap with SAF at $2,697/mt as traders pushed prompt values higher. The move underscores growing physical demand for renewable diesel (HVO) blending and shows how thin liquidity can rapidly amplify price moves when discretionary buyers step in.

In the U.S., soybean futures edged higher Monday on rising crude and expectations of farm support for growers hurt by China’s continued boycott of U.S. beans. Harvest pace is strong, but the shutdown is disrupting USDA data releases, keeping market visibility low. The net effect is a fragile balance between harvest pressure and rising energy support for soyoil demand. Meanwhile, D4 RINs are treading water around $1.02/gal as traders take a defensive stance. The rhetoric in Washington is turning increasingly hostile, and with little visible progress in Congress, an extended shutdown now appears more likely. The Trump administration is reportedly revising its farm bailout plans downward — now targeting around $10 billion rather than the previously floated $40 billion — to offer partial relief to soybean growers squeezed by trade pressures.

The weekend’s headline from Asia came from Malaysia, where the MPOB is reportedly considering a 10–20% export tax on waste oils such as UCO and POME ahead of the October 10 budget. If implemented, this would tighten export availability for European biodiesel producers and could prop up UCOME premiums further into Q4. Malaysian palm output in September was marginally lower at -2.3% m/m to 1.81 million tons, as Peninsular declines offset Borneo gains — but the policy signal on waste oil is what the market is really watching.

Should Malaysia move forward with a waste oil export levy, Europe’s dependency on Asian UCO would face an abrupt recalibration. RED III compliance margins for double-counted waste feedstocks could narrow, while arbitrage from China — already capped by freight and quota limitations — may not be able to fill the gap fast enough. The outcome could push UCOME valuations higher through winter, reinforcing the premium structure over RME and adding yet another layer of volatility to the global waste-oil complex.