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An analysis of how the biodiesel industry will develop?


A few months ago, the European Union (EU) launched the Biodiesel Supply Chain Compliance Certification, or ISCC EU, which refers to a certification process for the traceability of biodiesel feedstocks. Although this EU certification was already passed in 2012, the EU had no choice but to re-certify its biodiesel feedstock because some of the biodiesel flowing into the EU in 2023 had feedstock certification deviations.

In short, the biodiesel flowing into Europe must be produced from waste oils and fats in order to meet the EU’s requirements for carbon emission reduction and carbon balance, as well as the EU’s requirement that part of the biodiesel must be used in fuel locomotives. If the use of non-waste oil and grease, will not meet the requirements of the European Union, and accordingly will be subject to certain penalties, the most serious punishment, is to refuse to accept the violation of the relevant provisions of the enterprise re-entry into the EU market.

What impact will this have on the Chinese biodiesel market?

The European Union is the only market for China’s biodiesel exports, and all the biodiesel exported from China goes to Europe. This certification survey is more for the certification of biodiesel products exported from China. Of course, there will be a lot of biodiesel that does not meet the needs of the EU, as well as a lot of products exported as generation one biodiesel.

There is news that the European Biodiesel Association (EBB) has filed a trade protection complaint with the European Commission’s Directorate General for Trade, requesting the launch of an anti-dumping investigation into Chinese biodiesel products. And, the EU has launched an anti-circumvention investigation on Chinese biodiesel as early as October 2023, although there is no clear result, but the EU Customs did not take degrees of Chinese biodiesel restrictive measures. The current status quo, China’s biodiesel market is waiting for the results of the EU’s investigation.

The fundamental reason for the EU’s investigation is that China does not have this certification and is unable to realize the certification of raw material sources within China. Gutter oil in China comes from a wide range of sources and is so dispersed that it cannot be scaled up. There are many steps in the process from collection to aggregation of gutter oil, which does not exclude the possibility that other fats and oils may be added. It can also be said that it is difficult to carry out this certification in China.

Why is Chinese biodiesel exported to Europe?

China’s one-generation biodiesel market currently has a mainstream market price of about RMB 6,800 per ton, the mainstream price of second-generation biodiesel is about RMB 8,000 per ton, and the price of gutter oil delivered to the market is about RMB 5,000 per ton. If you consider the cost of hydrogenation and refining, as well as the related labor costs, China’s first-generation biodiesel sales profit margins are not large. Of course, this does not include the consumption tax, if the cost of consumption tax is considered, China’s biodiesel industry will not exist.

According to customs data, the average price of biodiesel in Europe is $1000-1200 per ton, of which the highest price in Switzerland, reached $2220 per ton, which translates into RMB 15,000 per ton or so, which is more than double the price in China. In front of the huge price difference, China’s biodiesel chooses to actively export to seek arbitrage, which is the necessary precondition for a large number of China’s biodiesel exports.

If the EU restrictions, what should China’s biodiesel do?

Although the EU has not taken any restrictive measures on China’s biodiesel exports to Europe, this is also based on the fact that the EU investigation has not yet ended and there is no clear result. However, it is not ruled out that it may take more severe restrictive measures on Chinese biodiesel, that is, to restrict its Chinese biodiesel to enter the European market. Or, it may start the ISCC EU certification for Chinese biodiesel.

In any case, for Chinese biodiesel enterprises will face the following choices: First, the EU requirements for biodiesel will become more and more stringent, Chinese exporters must meet its requirements, otherwise it will not be able to realize the export of products. This will undoubtedly increase the cost burden of export enterprises and reduce their export profits. Secondly, if you don’t choose to export to Europe, the future policy uncertainty of the Chinese market is very obvious, once the excise tax is levied, it is undoubtedly a fatal blow to biodiesel. Third, if you continue to maintain the Chinese market development, there is no consumption tax pressure, which is the optimal possible direction of development, under the premise of the second generation of biodiesel must increase the scale of development, increase the collection of waste oils and fats will be aggregated process, in order to protect the basic market share.

The European Union for China’s biodiesel survey is expected to be released in early 2024, although China’s biodiesel exports only about 100,000 tons, but the gutter oil exports have reached more than 3 million tons. The results of the EU investigation will certainly cause a greater impact on the whole industrial chain of biodiesel, the short term will certainly affect exports, in the long term, China still needs to be driven by domestic demand for biodiesel.

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