Export prices for UCO rose by $100/t after China announced the cancellation of benefits

China's decision to remove tax incentives for the export of waste vegetable oil will reduce supplies, leading to higher feedstock costs for biofuel producers worldwide, which will improve the competitiveness of Chinese UCO-based biofuels in the long run.

It will be recalled that on November 15, the Ministry of Finance of the People's Republic of China announced the cancellation of the 13% discount on export duty on chemically modified animal, vegetable or microbiological oils and fats from December 1, which shocked the markets.

China is the world's largest exporter of waste vegetable oil and biodiesel produced from it. In 2023, the main buyer of such oil became the USA, and the buyer of UCO-based biodiesel was the EU.

According to S&P Global Commodity Insights, the price of UCO waste oil in North Asia increased by $100/t to $1,000/t between November 19 and 21, while the Platts fixed UCO price on FOB Straits terms rose from $905/t during the period. t up to $950/t. At the same time, spot prices for UCO oil in China fell from $930/t to $841/t from November 15 to 21.

Experts at Rossari Biotech Ltd believe that the abolition of the benefit will increase the export value of UCO by $103/t, which will reduce the volume of its exports from China, which have been growing rapidly. Increasing domestic supply amid rising feedstock prices for foreign competitors will boost the competitiveness of China's UCO-based biofuels. Some Chinese UCO exporters have already breached supply terms, so buyers have begun to look for other sources of raw materials and have already stepped up demand for Malaysian UCO. However, in the long term, Trump's actions as US President may have a greater impact on Chinese UCO prices than the removal of export benefits.

Analysts believe that the reason for the change in the tax regime is China's intention to pay more attention to the biofuel industry. In August, a political goal was announced to introduce a share of clean aviation fuel in the SAF mix within 2% by 2025 and increase it to 15% by 2030. To meet China's 2% SAF mandate, China will need 2.5 million tons of SAF, the production of which requires more than 3 million tons of UCO as feedstock.

According to customs data, in 9 months of 2024, China exported 2.12 million tons of UCO, which exceeds the 1.406 million tons exported in all of 2023. It also plans to introduce the first export quota for marine bunker fuel blended with B24 biodiesel in 2025 to support biofuel producers hit by the EU's imposition of anti-dumping tariffs earlier this year.