Feb China UCO exports to US surprises

The recent data on Chinese UCO exports to the US has revealed some surprising trends. Even though January/February China UCO incremental exports to the US showed a significant increase of 318%, it appears that this may have resulted from postponed shipments or restructured shipping schedules following the lack of 45Z guidance required to register such feedstock volumes into the program. This is particularly evident when observing the significant 30% drop in US exports in February 2025 compared to February 2024. Despite the drop in US-bound shipments, China's cumulative UCO exports for the Q4/Feb period managed to increase by 6.7%. This growth occurred despite a cumulative drop of 26% to the US market, with exports dramatically increasing to Europe (+99%) and Malaysia (+180%) to compensate. This redistribution of export destinations highlights China's ability to pivot quickly to new markets when faced with challenges in traditional ones.

The pricing landscape presents its own puzzles, with May BOGO settling at +$262/mt while FAME 0 premium values remained firm at +$635/mt. This premium is approximately $170/mt higher than mid-February levels, despite gasoil dropping $30/mt during the same period. The strong FAME 0 premiums must be reflecting robust demand in Northwest Europe, though there has been little tangible evidence of such demand in physical markets. RME has seen similar strength, moving $140/mt higher since mid-February to today's spot premiums of +$643/mt over ICE gasoil. Interestingly, the RME/FAME 0 spread has barely moved from $33.50 to $27 today.

What's particularly noteworthy is the tremendous ICE RME paper volumes in the past week (week 12), with 624K MT changing hands – a 250% increase over week 11. This level of activity hasn't been observed in either FAME 0 or UCOME paper markets. This exceptional activity in RME paper trading may be connected to the pricing activities that UFOP indicated in the German investigation. While significant paper activity was observed in UCOME during week 8, the week12 RME paper activity on ICE stands out as truly exceptional. For context, the last time such tremendous paper activity was observed was in FAME 0 during week 45 of last year.

On the other side of the Atlantic, the declines in Chinese UCO exports to the US are mirrored by significant changes in US biofuel production itself. Recent Oil World data confirms what EMTS numbers have been indicating – US biofuel production has decreased substantially, with February 2025 volumes plummeting to 749,000 tonnes, down 36.9% from February 2024. However, what's more revealing than the overall decline is the dramatic shift in production mix. HVO now dominates the landscape, accounting for 72% of total biofuel production in early 2025, compared to just 24% five years ago. This transformation represents one of the most significant structural changes in the US biofuel industry in recent years.

Despite the monthly production decline, cumulative Oct/Feb 2024/25 production actually managed a slight increase of 0.5% year-over-year, with HVO production rising 6.8% while traditional biodiesel fell 10.4%. The industry's clear preference for HVO technology stems from its ability to extend the diesel pool, making it highly attractive to refiners who have increasingly entered this space. Today's market shows continued contradictions, with D4 RINs strengthening to $0.812/gallon while screen biodiesel crush margins remain 22 cents/gallon negative. This disconnect between compliance credits and fundamental economics underscores the challenging environment biodiesel producers face. The sustained negative crush margins, despite stronger RIN values, suggest that the ongoing shift toward HVO is likely to continue as traditional biodiesel struggles with profitability. These market dynamics, driven by both policy uncertainty and technological preference, will likely accelerate the reshaping of the US biofuel landscape in 2025 and beyond.