China UCO prices face more pressure as virus spreads

Prices of waste-biodiesel and feedstock exports from China have fallen by 20-30pc since the coronavirus outbreak emerged, with further declines possible as the virus continues to spread in Europe.

Used cooking oil (UCO) and UCO methyl ester (Ucome) prices out of China have plunged by 22pc to $665/t and by 30pc to $875/t fob respectively since hitting record highs in January. Ucome prices in Europe have fallen by 31pc over the same period to hit a 15-month low of $1,205/t fob ARA (Amsterdam, Rotterdam and Antwerp).

Prices peaked after China imposed work and travel restrictions across several provinces in late January, which led to UCO collections drying up.

But the spread of the coronavirus across the globe in the last two months has forced more countries to impose their own lockdown measures. The consequent fall in demand for transport fuels has heavily outweighed the shortfalls in supply.

Chinese production of UCO and Ucome has been slowly increasing over the past couple of weeks as domestic restrictions are eased. But the coronavirus outbreak in Europe has yet to peak, further adding to the supply imbalance.

Several biodiesel refineries in the EU are reducing utilisation rates until travel restrictions are lifted and transportation demand returns. But estimates on the lengths of the shutdowns are changing by the day, leaving few market participants willing to take positions while prices are so volatile.

Discussions for larger bulk cargoes in particular have all but ceased. Sporadic trades have been done for smaller-volume loads, but firm business is hampered by wide bid and offer levels as sellers do their best to maintain margins.

The most recent official export data cover January and February, before the pandemic started to severely affect markets in Europe. Chinese Ucome exports totalled 129,000t in the two-month period, triple the level in January-February 2019. UCO sales rose by 30pc over the same period to 93,000t, according to customs data.

At least 150,000t of UCO and Ucome has been booked to load from China in the second half of March and early April destined for Europe, according to shipping fixtures seen by Argus. Buyers hope this will see them through the downturn.

Some contract business is continuing, but new purchases are not worth the risk at the moment, according to one trader.

"No-one wants to be on the wrong side of a $100/t move," the trader said. Market participants are instead just "assessing the situation each day and doing the best they can."

By Amandeep Parmar

source: Argus Media