It was my Birthday yesterday so I did not look at the markets. The global biofuels market finds itself navigating through increasingly turbulent waters as policy uncertainty in the United States coincides with dramatic shifts in global oilseed trade patterns. A quietly introduced bill (HR 549) by Republican lawmakers to repeal the crucial 45Z clean fuels incentive has sent ripples through the industry, potentially threatening the foundation of renewable fuel economics in the United States. The proposed retroactive application after 2024 adds another layer of complexity to an already challenging market environment.
Meanwhile, a seismic shift is occurring in global soybean trade flows, particularly in relation to China, the world's largest importer. Chinese soybean imports from the United States dropped 5.7% in 2024, with Brazil cementing its dominance by capturing 71% of China's import market while the U.S. share contracted to 21%. Of particular note, only 47% of current U.S. soy sales are destined for China - the lowest rate in 17 years, excluding trade war years. This realignment of trade flows comes amid renewed concerns about potential U.S.-China trade tensions under a possible second Trump administration.
Supply dynamics in Southeast Asia are adding further complexity to the market. Indonesian palm oil exports fell to 2.637 million tons in November from 2.888 million tons in October, while domestic biodiesel consumption decreased to 994,000 tons from 1.052 million tons. Malaysian palm oil production is showing consistent declines across January, with SPPOMA data indicating production down 3.13%, FFB yields lower by 0.96%, and oil extraction rates declining by 0.41% for the period of January 1-25.
The broader energy complex remains under pressure, with crude futures tracking toward their biggest weekly loss since November. This weakness stems from multiple factors, including Trump's threats of trade wars and his direct request to Saudi Arabia and OPEC to lower prices. Despite a cold Northern Hemisphere winter driving up heating demand and US sanctions on Russia disrupting crude markets, prices have struggled to maintain momentum. The traditional relationship between energy and biofuel markets appears to be evolving, with soybean oil now trading at 1.41 times the price of gasoil. BOGO holding its own at +$291/mt.
ARAG spot prices still show decent margin with RME gross margin still at $93/mt while FAME while F0 is now only $86/mt. Most interesting is the fact that HVO cl 4 is now trading $10/mt below SAF values at $1847/mt in ARAG. D4 RINs are trading at decent value and reflecting a 0.30 c/gal loss or $59/mt loss making it impossible for US conventional Biodiesel plants to produce. Only large RD plants can possibly find some sort of economy of scale but not beyond break-even.
Looking ahead, the market faces a critical period of adjustment. The combination of policy uncertainty, shifting trade patterns, and supply constraints creates a complex environment for market participants. The potential repeal of the 45Z credit could fundamentally alter the economics of renewable fuel production in the United States, while the ongoing realignment of global trade flows suggests a more permanent shift in traditional supply chains. These factors, coupled with production challenges in key Southeast Asian markets, indicate that the biofuels industry may need to adapt to a new market paradigm in the coming months.
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