Europe Trades Paper, U.S. Chases CI, and Asia Lifts Palm — A Global Biofuels Rebalance

BOPO (Bean Oil – Palm Oil spread) has reversed sharply, now trading at +218/mt, up from -200/mt just six months ago—a $400/mt swing that reflects structural strength in palm oil, particularly after India’s palm oil imports surged 60% in June year-on-year to an 11-month high. This demand has kept palm prices buoyant, supporting POGO at +$308/mt and lifting BOPO firmly back into positive territory, with implications for hedging and blend economics globally.

BOPO

In Europe, biodiesel paper trading remains dominant. Week 28 saw FAME 0 swaps trade 351kt, RME at 275kt, and UCOME below 200kt, indicating that risk appetite is focused more on paper positioning than physical cargo execution. This comes even as the physical vegoil complex continues to weaken: rapeseed oil is now offered at €1,025/mt for near-term and €1,000/mt forward, while Dutch soybean oil holds at €1,115/mt. Despite this softness, implied gross margins tell a clearer story—UCOME leads with ~$257/mt, followed by RME at $147/mt, while FAME 0 lags with only $22/mt based on a flat price of $1,326/mt and Dutch SBO feedstock.

Across the Atlantic, the U.S. market is realigning under the 45Z credit structure, which rewards low-carbon intensity fuels. While the USDA projects that over half of U.S. soybean oil output will be used in biofuels next year, this assumption appears increasingly misaligned with on-the-ground realities. In jurisdictions governed by Low Carbon Fuel Standards—not only California, but also Oregon, Washington, and soon others—soybean oil faces steep ILUC penalties, pushing its effective carbon intensity above 75 gCO₂e/MJ. Under 45Z, SBO yields just $0.38–$0.42/gal, far below the value of tallow, UCO, or corn oil. Refiners are pivoting away from SBO accordingly.

This is pushing North American feedstock flows into focus. Imports of tallow and UCO from Mexico and Canada are expected to rise by at least 20%, driven by the need to secure 45Z-compliant supply as Asian and South American fats lose eligibility. This increase could add over >200,000 mt/year of qualifying feedstock to the U.S. market. Mexico, in particular, may play a dual role—importing Brazilian tallow for domestic use while exporting local compliant tallow northward. This rebalancing is already underway and will be key to sustaining RD and SAF economics through 2026.

In short, global biodiesel markets are caught in a structural reshuffling: paper trades remain heavy in Europe, gross margin spreads are diverging sharply, and regulatory alignment—or misalignment—is driving trade and hedging behavior far more than price alone.