The renewable diesel and biodiesel markets are facing significant headwinds in early 2025, particularly in the United States where policy uncertainty and trade tensions are disrupting production and investment. Perhaps most concerning is the EIA's latest downward revision of its 2025 U.S. renewable diesel production forecast to 227,000 barrels per day, representing a steep 23% reduction from initial projections made just last year. This bearish outlook comes as biodiesel plants across the country struggle with the December 2024 expiration of the Section 40A Biodiesel Tax Credit, prompting industry groups to petition Congress for an extension to prevent further market volatility and potential price increases for consumers. The situation appears increasingly precarious as D4 RINs not doing the work, with biodiesel screen crush margins remaining approximately 35 cents per gallon negative, suggesting the EIA forecast may actually be conservative if current uncertainty persists. The looming possibility of a government shutdown this week further complicates the regulatory landscape and could delay critical policy decisions affecting the sector.
The impact of policy uncertainty is already evident in plant closures and idle capacity. Western Dubuque Biodiesel in Iowa has paused operations since late December, with General Manager Tom Brooks revealing the plant is losing approximately $500,000 monthly while production remains suspended. "If I sold gallons today, I'm losing anywhere from 30 to 50 cents a gallon, and so that's why we're not running," Brooks explained. Despite these losses, the company is retaining its 22 workers in hopes that policy changes and market improvements will eventually allow operations to resume. This situation is not unique, as multiple biodiesel facilities across the Midwest have reported similar shutdowns.
In Europe, physical biodiesel prices have been trending upward despite relatively soft renewable fuel ticket prices. Today's Amsterdam-Rotterdam-Antwerp (ARA) market saw relatively quiet spot trade, though UCOME premiums have reached a significant milestone at +800 over ICE gasoil while maintaining a +245 spread over FAME 0. RME continues to hold its own at +600 over ICE gasoil, though the RME/FAME 0 spread has narrowed to just +$44. Feedstock dynamics are also shifting, with rapeseed oil widening its discount to soybean oil in Europe to $60/mt. The market's backwardation remains pronounced, with Q2/Q3 spreads at +$49/mt for FAME 0 and +$55 for UCOME. Notably, paper trading volumes have dropped dramatically in week 9, with UCOME down 62% from the previous week to 214,000 tons, while FAME 0 and RME trading fell by 54.8% and 83% respectively – possibly reflecting market caution amid ongoing pricing investigations. Meanwhile, sustainable aviation fuel (SAF) prices remain relatively stable at $1,764 per ton, but the premium over ICE gasoil has expanded to +$1,121, highlighting the persistent cost premium of aviation biofuels.
In Brazil, a different type of industry challenge is emerging as fuel distributors have requested a 90-day exemption from the country's mandatory 14% biodiesel blending requirement. The request, made by the National Union of Fuel and Lubricant Distribution Companies (Sindicom), comes amid concerns about increasing sales of non-compliant diesel with reduced or no biodiesel content. According to industry reports, non-blended diesel is being sold at approximately R$0.22 per liter less than compliant fuel, with price differences varying by state. This request has created significant tension, with the Parliamentary Front for Biodiesel describing it as a "cunning and opaque mobilization" aimed at "eliminating renewable energy" in Brazil. Agricultural interests note that suspending the blend requirement would halt the crushing of approximately 10 million tonnes of soybeans, potentially reducing soybean meal supply and affecting food inflation.
Trade conflicts are adding another layer of complexity to the global biofuels landscape. The recent implementation of tariffs by the Trump administration has triggered retaliatory measures from both Canada and the European Union, with agricultural products including soybeans specifically targeted in the EU's countermeasures. This emerging trade war threatens to disrupt crucial feedstock supply chains for biofuel producers while potentially limiting export opportunities for finished renewable fuels. European crushers who rely on U.S. soybean imports face a particularly difficult situation as the EU's retaliatory tariffs would not only increase their feedstock costs but could also undermine the economics of renewable fuel credit generation that many facilities depend upon for profitability. On the technical front, the soybean oil chart appears to be turning bearish again, with traders closely watching for confirmation as the 20-day weighted moving average approaches a potential crossing below the 50-day weighted moving average – a signal that could indicate further downward pressure on a key biodiesel feedstock.
Despite these challenges, the long-term outlook for renewable diesel and sustainable aviation fuel (SAF) remains cautiously optimistic, with significant investments continuing in new production capacity. In Europe, OMV Petrom has begun construction on a SAF and renewable diesel production unit at its Petrobrazi refinery that will have an annual capacity of 250,000 tons, positioning the company as the first major producer of sustainable fuels in Southeast Europe. This €750 million investment demonstrates that while the immediate market faces uncertainty, industry leaders continue to see renewable fuels as essential to long-term transportation decarbonization strategies.
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