Policy Over Fundamentals, Tariffs Distort UCO Trade as RINs Rise Against Structural Logic

ARAG window liquidity remained thin. RME traded at 1,387 per metric ton and FAME0 at 1,337 per metric ton. UCOME did not trade. HVO Class II printed at 2,570 per metric ton, up 10 on the day, while SAF held near 2,250. The clearing interest remains concentrated in conventional grades, with waste based product largely assessed rather than actively exchanged.

European inland logistics have shifted materially. Water at Kaub is near 4 meters and upper Rhine gauges such as Maxau have moved back above critical draft thresholds. Full barge intakes are restored and freight rates have fallen sharply versus the January low water squeeze. The Rhine has moved from constraint driven tightness to normalized capacity in late February. That removes a measurable prompt support factor that had tightened physical margins earlier this quarter.

In contrast, the Mississippi system remains below seasonal norms. River flows near St. Louis are running well under long term averages, forcing smaller tow sizes and higher cost per delivered ton. Europe has removed a logistics headwind. The U.S. inland system continues to carry one.

South America continues to signal abundance rather than scarcity. Brazilian FOB Paranagua soybean oil indications remain deeply negative versus board equivalents, in a range of minus 760 to minus 1,200 depending on shipment window. U.S. soybean export inspections were 24.6 million bushels versus a trade expectation range of 33.1 to 44.1 million bushels and remain 16 percent behind the required pace. Brazil is currently the cheapest export origin. These data points do not support a structurally tight vegetable oil balance.

The UCO data make the policy effect clear. After IEEPA tariffs, China’s used cooking oil exports to the United States fell 55 percent from roughly 1.2 million metric tons to 540 thousand metric tons in the fourth quarter. At the same time, non China imports increased, led by Australia up about 400 percent and South Korea up about 110 percent. The tariff reduced direct China flows, but total supply reallocated. Barrels shifted origin. They did not disappear.

What is happening in UCO is happening across commodities. Tariffs do not eliminate demand or supply. They redirect it. The measurable result in this case is a 55 percent drop from one origin offset by triple digit percentage gains from others. The broader result is reduced overall trade efficiency and higher friction in supply chains. Trade volumes adjust. Routes change. Costs rise. Global flows become less direct.

Germany is tightening sustainability oversight at the same time. The BLE, under the Federal Ministry of Agriculture and historically relied upon for Proof of Sustainability traceability, published a list of countries granting access rights for on site inspections of biofuel producers. If a third country refuses access, the Nabisy database defaults to a negative response and producers can be excluded from the German market. Brazil and Singapore are not listed, while Hong Kong appears instead of China. The voluntary framework is expected to become a legal obligation under the second amendment to the GHG quota. This signals a shift from paper based certification reliance toward active verification and enforcement.

The most significant structural debate in the United States now centers on mandate architecture. The administration is expected to move toward a gallon based Renewable Volume Obligation rather than a purely RIN based construct, while also removing the 50 percent reduction in RIN generation for foreign origin producers and imports. A gallon mandate reduces compliance flexibility relative to a RIN driven framework. Eliminating the half RIN treatment for imports expands the effective RIN generating base and changes relative incentives between domestic and imported gallons. Over time, that structure should compress scarcity premiums embedded in RIN pricing if imports qualify fully.

Despite that logic, D4 RINs traded higher. December 2026 printed near 1.589, up about 1.2 percent on the day. The market appears to be pricing transition risk rather than long term supply expansion. If the shift to a gallon mandate creates near term compliance friction before supply adjusts, obligated parties may bid RINs higher even as the eventual structure points toward greater effective supply.

The data line up clearly. Rhine water near 4 meters at Kaub. Mississippi flows below normal near St. Louis. Brazilian soybean oil priced at up to minus 1,200 versus board equivalents. U.S. soybean inspections 16 percent behind pace. Chinese UCO exports to the U.S. down 55 percent to 540 thousand metric tons, offset by large percentage increases from Australia and South Korea. D4 RINs at 1.589 despite structural changes that expand qualifying gallons.

Flat price fundamentals point to abundance. Policy architecture and tariff design are reshaping trade routes and compliance math quickly. The market is reacting to mandate mechanics, certification enforcement, and tariff distortion as much as it is reacting to feedstock balances.