Soybean oil rebounds against rapeseed in EU; RTFO hidden challenges for U.S. Ethanol in UK

The biodiesel and renewable diesel markets in both the U.S. and Europe experienced subdued trading activity today, largely due to ongoing May holidays across Europe and China. Despite this quiet backdrop, significant movements were noted, particularly in European soft oils, where soybean oil dramatically reversed its discount to rapeseed oil. The July flat price for soybean oil jumped by €40-€55/mt, contrasting sharply with rapeseed oil, which saw declines of €5-€10/mt. Nevertheless, with rapeseed oil readily available for June delivery at €1,065/mt and soybean oil offers scarce, rapeseed oil's apparent discount remains somewhat illusory.

In the Paranaguá FOB market, soybean oil premiums continue to demonstrate unexpected firmness despite fundamental market indicators suggesting an oversupply. Reports highlight excess soybean meal in South America and notably reduced soybean nomination activities. According to recent market intelligence, FOB Paranaguá premiums remain robust, particularly for June and July shipments, underscoring an ongoing disconnect between physical supply dynamics and market pricing.

Meanwhile, the ARAG biodiesel market maintains firm pricing for FAME 0 (F0), with FOB barge premiums at +672 over ICE gasoil, significantly above today's BOGO at +467. However, the UCOME to F0 spread hovering around +130 indicates less market tightness than previously perceived. Traders should consider the relative stability of these spreads as an indicator of underlying market conditions, despite surface-level pricing resilience. Additionally, U.S. D4 RIN prices fell today, exacerbating the negative biodiesel crush margin in US, now deepening to around 40 cents per gallon, adding further pressure to biodiesel producers' profitability.

In related biofuels market news, recent enthusiasm around increased U.S. ethanol exports to the UK should be tempered by the UK’s Renewable Transport Fuel Obligation (RTFO) criteria. Specifically, the RTFO mandates minimum greenhouse gas (GHG) savings, which most U.S.-produced corn ethanol currently does not meet. Thus, traders and producers should carefully evaluate the sustainability credentials of their ethanol offerings when assessing export opportunities to the UK.

Lastly, there is a notable anomaly within renewable diesel pricing, specifically between HVO (classes 2 and 4) and Sustainable Aviation Fuel (SAF). Currently, SAF prices are trading significantly lower at around $1,756/mt, marking an unusual $200/mt discount to HVO classes 2 and 4, priced approximately at $1,890/mt. Typically, SAF prices would trade at a premium or at parity with HVO, given SAF's stringent quality and certification requirements. This unusual pricing inversion, combined with the logistical constraint requiring buyers to simultaneously procure more expensive HVO alongside SAF, indicates potential volatility and future price adjustments driven by structural market issues and evolving regulatory factors.