Policy and Legal Risk Drive Vegoils as Palm Demand Slips and UCOME Turns Bearish

Vegetable oil markets firmed on January 14 across soyoil, sunflower oil, and biofuel RINs credits. Price action reflects policy, compliance structure, legal risk, and geopolitics rather than tightening agricultural balances.

India’s edible oil imports declined during November to December 2025. Total imports fell 11.6 percent year on year to about 2.51 million metric tons versus 2.84 million metric tons last year. Palm oil imports dropped to roughly 1.14 million metric tons from 1.34 million metric tons. Soybean oil imports rose to about 880,000 metric tons, while sunflower oil imports also increased. This confirms the adjustment came almost entirely from palm oil and reflects price driven substitution.

Indonesia confirmed it will maintain the B40 biodiesel mandate through 2026 and defer any move to B50. Crude palm oil export levies will rise to 12.5 percent from March from 10 percent, with refined product levies also increasing by 2.5 percentage points. Market estimates place the incremental demand impact of B50 near 3 million metric tons per year. That demand is now removed from the second half 2026 outlook while higher levies directly pressure Indonesian exports.

Palm oil futures did not reflect these fundamentals. Bursa Malaysia March CPO traded up to around 4,140 ringgit per metric ton intraday before settling near 4,060. This contrasts with weaker demand signals from India, capped biodiesel blending, and higher export levies. Price behavior points to cross oil support rather than palm balance sheets.

Sunflower oil prices surged across the Black Sea. Front month FOB and CIF values rose by more than 100 dollars per metric ton, with prompt offers and trades reported in the 1,550 to 1,580 dollars per metric ton range. At these levels, sunflower oil is not used for biodiesel. The transmission channel is edible substitution. In Northwest Europe, the discount of soyoil versus sunflower oil has widened beyond 285 dollars per metric ton, supporting soyoil and palm demand through food use.

In Europe, ARAG biodiesel window results were firm. RME traded at 1403/mt FOB ARA range depending on loading dates, while rapeseed oil FOB ARA traded around 1220 dollars per metric ton. Therefore, implied RME gross margins fall in a range of approximately 180 to 200 dollars per metric ton. Low Rhine river levels continue to restrict inland barge payloads by an estimated 20 to 30 percent versus normal, tightening effective supply into Southern Germany and Switzerland and providing additional near term support to coastal RME values.

Used cooking oil prices remain elevated. CIF ARA UCO indications are around 1,080 to 1,120 dollars per metric ton, while inland DDP Northwest Europe values trade in a 1,150 to 1,175 euros per metric ton range. POME values are near 1,000 to 1,020 dollars per metric ton CIF ARA, leaving a UCO premium of roughly 80 to 120 dollars per metric ton driven by higher GHG savings and broader RED III eligibility. UCOME traded today in ARAG at $1429.50/mt.

Germany again substantially over fulfilled its THG quota in 2024. Public analyses indicate a sizeable surplus generated through high usage of waste based fuels, particularly UCO and POME. Part of this surplus is bankable into future compliance years.

In addition, traders are discussing indications that the bankable 2024 surplus may be larger than previously assumed, with volumes potentially extending into 2026 and 2027. These figures remain unconfirmed and should be treated as indicative. Even so, a multi year surplus materially reduces expected quota tightness.

Combined with the end of double counting in Germany, this setup is clearly bearish for Annex IX feedstocks, not only UCOME. The removal of double counting permanently reduces the number of THG units generated per physical tonne of Annex IX material. At the same time, a large banked THG surplus allows obligated parties to meet near term obligations without incremental physical blending. This reduces compliance driven demand across Annex IX feedstocks, including UCO, POME, animal fats, and other waste and residue streams, softens German offtake, and weakens Germany linked premiums until higher GHG quota levels are legislated and implemented.

US soyoil extended its rally. The March CME soyoil contract settled near 50.8 cents per pound. Soymeal declined sharply, reinforcing oil share strength. In South America, soyoil basis weakened, offsetting futures gains and signaling adequate nearby supply.

In the United States, D4 RINs firmed again. December 2026 traded near 1.23 dollars per RIN, with June 2026 above 1.22. These levels persist despite biodiesel screen margins remaining negative, underlining that RIN pricing reflects policy risk rather than production economics.

Beyond biofuels, traders are monitoring US macro and legal risk. The Supreme Court has not issued its decision on the tariffs case and has not provided timing guidance. Debate around a possible US government shutdown continues. While compromise appears likely, the issue adds event risk. Together, unresolved tariff litigation and fiscal negotiations raise the probability of headline driven volatility over the next two weeks.

Across markets, signals remain aligned. India is cutting palm intake on price. Indonesia is capping biodiesel ambition while raising export levies. Palm futures appear disconnected from demand fundamentals. Black Sea sunflower oil strength is lifting soft oils through edible substitution, most visible in Northwest Europe via the 285 plus dollar per metric ton soyoil discount. ARAG biodiesel economics remain supported by quantified margins and Rhine logistics. Germany’s THG surplus combined with the end of double counting is bearish for UCOME even as UCO prices stay elevated. Legal and fiscal uncertainty in the United States adds to near term volatility.