26.12.2018 (S&P Global Platts) - London — The main point of focus around European biodiesel in 2019 is expected to be developments on anti-subsidy duties against Indonesian and Argentinian biodiesel imports, which are of critical concern for European supply balances.

In 2018, Europe imported an unprecedented volume of palm-based and soy-based biodiesel from Indonesia and Argentina, respectively, following the removal of previous duties. This provided abundant cheap blendstock for FAME blends, with the FAME 0 premium over gasoil falling to four-year lows of $118.75/mt in November. Imports also weighed on competing products like UCOME and TME, despite their being double counted, as the low cost created an incentive to blend greater volumes rather than pay the double-counting premiums.

In December, the European Commission initiated an anti-subsidy investigation on Indonesian biodiesel, just a few days after it proposed duties on Argentinian product. It is unclear when and if provisional or retroactive duties would be imposed on PME, but this is unlikely to be a concern until the second quarter. This is because the EU can impose provisional duties no later than nine months from the start of proceedings, and retroactive duties can only be put in place up to three months before the provisional imposition.

Some sources see a decision to curb the flow of Indonesian PME as having a much larger impact on the European market than an equivalent for SME. The flow of cargoes is currently continuing, but imports of SME are expected to slow in the new year. Imports of PME, on the other hand, may be workable until the end of Q2, although Asian importers are cautious and view April as a likely time line for duties to be implemented against Indonesian PME. As a result, FAME 0 values have received a boost further down the curve, but considerable volatility is almost certain.

Proceedings are occurring at the same time as a ban on palm oil in transport in Europe is being more broadly discussed, with some individual countries taking action independently, but also with this forming a topic within the European Commission's post-2020 Renewable Energy Directive (RED II).

In terms of more immediate factors affecting European biodiesel, challenges around logistics will be the key issues to resolve at the start of 2019. Logistics were a major headache in the last quarter of 2018, affecting the RME market in particular, with a lack of feedstocks reaching producers and end product struggling to reach the market during the winter-grade product's peak demand season.

Water levels on the Rhine fell to as low as 30 cm in November, hindering transportation of product via barge along the river, but also on land as rail and truck demand surged as a result. Rainfall at the start of December allowed water levels to rise above the 150 cm threshold, above which barges can be comfortably loaded, also allowing barge freight rates to fall from exceptionally high levels. But forecasts point to river levels potentially falling before going up again, so the end to logistical challenges does not appear to be immediate.

In January, market participants will be aiming to clear the backlog of barge shipments and will be hoping for logistics to normalize should water levels hold up.

On the demand side, increased mandates in several European countries should help support biodiesel consumption in 2019. Spain and Portugal both have an overall biofuel mandate on an energy basis but are markets heavily dependent on diesel, so the changes in the blending requirement from 6% to 7% and 9% to 10% respectively will likely benefit biodiesel sales the most. Slovakia will be increasing its overall biofuel mandate gradually, but it also has a specific biodiesel mandate, which will rise from 9.7% to 10.1% on a volume basis. Italy will also be increasing its biofuel mandate, from 7.5% to 9% on an energy basis, while the Netherlands will raise the blending obligation from 8.5% to 9.25% on an energy basis.