Market and product

Outright prices for biodiesel RME in Northwest Europe dropped to their lowest level in almost 10 months Wednesday, with buying interest lackluster as a number of blenders were already covered for their requirements in Q1 ahead of a specification switch in Q2.

The RED RME outright price was assessed at $811.75/mt Wednesday, the lowest level since April 23, 2015, when it stood at $811/mt.

With the switch from FAME-10 to FAME 0 approaching in April, buyers particularly held back on rapeseed-based RME as they awaited the summer specs for blending, in which more PME and other components with a higher Cold Filter Plugging Point could be added.

PME and FAME tend to be cheaper than RME, owing to their lower quality specs.

"With summer period approaching, buyers can purchase products with worse cold-flow properties, so it is understandable that people are holding back on RME purchases," a blender said. "With the big gap between RME and FAME 0, every purchase that you can delay could mean quite some money."

The phenomenon has been stronger in the current year, as outright prices on the various FAME grades have been relatively steady, whereas gasoil prices have traded at near 11-year lows.

This has pushed up the premium on FAME grades, with the RME premium hitting a historical high of almost $600/mt in December 2015.

Blenders are required under European national mandates to mix a certain proportion of FAME in their diesel mix.

UCOME, which gives double counting towards meeting the mandates and has a CFPP between 0 and 2 degrees Celsius, particularly attracts interest from buyers in the summer months as it becomes suitable for blending with the season switch.

This in turns dampens demand for RME, prices of which fall as low as near parity with FAME 0 in the summer season, compared to a spread well over $100/mt in winter months.

The spread between RME and FAME 0 was $84.75/mt Wednesday.

With gasoil futures trading lower and demand for RME weaker, producers have also struggled to maintain margins. Some producers had already reduced their RME output amid the difficult economics on making RME.

"We are already slowing down production, it is quite an immediate change for us," a producer said.

The spread between RME and rapeseed oil stood at Eur26.75/mt ($30.31/mt) Tuesday and Eur28.55/mt Wednesday.

These were the lowest levels since May 1, 2013, when it was at Eur13.86/mt. Market participants said a spread of around Eur80/mt was generally required to make the conversion from RSO to RME feasible.