Rhine logistics, crop fears and demand drive Europe’s RME to $1500/mt price high

13 Nov 2018 | Tim Worledge

European prices for rapeseed-derived biodiesel (RME) have established new price highs as a potent cocktail of tight supply, logistics problems and seasonal demand drive the market to record levels, market sources have told Energy Census.

The strength in the biodiesel price may also have a knock on impact for the UK's renewable transport obligation, where compliance certificate prices have languished in recent weeks.

Premiums for RME have surged to over $830/mt this week, with the biofuel’s value often expressed as a differential to the underlying ICE gasoil futures contract.

Market sources saw low sulphur gasoil trading at around $650/mt, making the outright price close to $1,500/mt – the highest price seen since at least 2011.

By comparison, RME premiums at the start of April stood at around $230/mt.

The oilseed's rampant summer began when a hot, dry spell overtook much of northwest Europe's plantings, ravaging yields and leading to sharp reductions in crop sizes. 

RME prices found support from there on, with the premium passing through $300/mt by June, despite the grade being outside its typical peak demand period.

By early October, the premium had stormed to $400/mt, according to Energy Census data, while the lingering impact of drought has provided a further sting in the tail.

Low water levels along key river arteries like the Rhine are making it impossible to move biodiesel supplies by barge, with freight rates some 250% above ‘normal’ levels, according to market sources.

That has driven premiums even higher, as inland German demand has had to be met by train or truck, with producers inside Germany caught out by the supply shortage.

“There are some big factories that were not at full capacity – they were not ready for this big demand,” one market source said, with inner demand only able to be supplied either via Rostock, or by train or truck.

“There is not enough RME produced at the moment,” the source said, with premiums surpassing $700/mt by early November before topping $830/mt on Monday, and still likely to push higher.

UCOME left in the shade

With the move into winter specification diesels – where RME’s superior cold properties bring additional demand for the grade – premiums have been further supercharged, driving a wedge between RME and other biodiesels.

For some other grades of biodiesel, the strength in RME is piling pressure on their prices, as the inferior cold properties – typically measured by the cold filter plug point – means they are attracting less interest, even for waste-based fuels that are typically encouraged by government initiatives such as double counting.

“The market as of right now is pricing CFPP – that’s what drives RME as high as it is – so there’s no real need to supply double-counted product,” the market source said.

For UCOME, which contributes a significant portion of the UK’s compliance to biofuel mandates through its double counting regime, the softer demand picture has seen premiums idle and prices lag well behind RME.

That is likely to spell continued pressure to the UK’s certificate prices, which can be influenced by the differential between the waste-based biodiesel price and its mineral diesel equivalent.

Energy Census assessed Year 11 certificates at 12 p/certificate as of Friday, November 9, with offers for both Year 11 and Year 12 heard moving lower earlier this week.

And there's no sign of any respite, as Germany’s oils and protein union, UFOP, warned on Tuesday that the country's rapeseed area in 2019 is likely to be around a million hectares, a fall of around 18.1% versus the previous year - any may yet fall further.

The results are based on a poll of German farmers, many of whom are reported to be shunning the oilseed as either the ground is too dry to plant, or 2018's poor yields leave them wary of planting more this year.