By Sarah Trinder
LONDON (ICIS)--Legislative uncertainty is likely to continue to cloud the outlook for European biofuels markets in 2014, with a decision on amendments to the European Renewable Energy Directive (RED) yet to be made.
The proposed amendments were to factor in indirect land use change (ILUC) emissions in the greenhouse gas (GHG) emissions of biofuels, and to cap the contribution of food crop-based biofuels towards European mandates.
Speaking at the FO Licht World Ethanol and Biofuels Conference in Munich, Germany, analyst Christoph Berg said it could take at least another year before final positions on these issues are decided, that is if the next European Parliament decides to revisit them.
Legislation aside, anti-dumping duties will play a large role in shaping market conditions next year.
Competitively-priced imports of biodiesel from Argentina and Indonesia have concerned European players during the past year.
As a result, the European Commission introduced anti-dumping duties (ADDs) of €216.64-245.67/tonne to product from Argentina, and €76.94-178.85/tonne to biodiesel from Indonesia.
These duties are in place for five years but sources are unsure as to how this will impact the market during 2014.
“There will be no more imports from Argentina and Indonesia – will it be a solid RME [rapeseed methyl ester] market? Where will FAME [fatty acid methyl ester] 0 blends come from? Will people be looking more at UCOME [used cooking oil methyl ester]? Will people look into bringing palm oil into Europe? I know at least two producers are looking into this,” one source said.
“People want to suck it and see next year - see how the ADDs will impact,” another source said.
“No one is rushing to start up biodiesel plants any time soon - not until they know what will happen next year. Those producing at lower capacity will increase production should the market allow,” the source added.
Imports are less of a concern for the European fuel ethanol market, according to sources.
“Brazil is out of the picture for the future,” one source said.
“A positive for the market is that ADDs are in place, limiting imports from the US. Brazil is ruled out too. As a result, Europe becomes self contained – you’re only going to use what you produce aside from the Guatemala and Peru stuff [product] ... the market should feel bullish,” one broker said.
However, the source said that margins were likely to remain weak in 2014.
“Ethanol is just really weak... margins are pretty tough for wheat producers. Margins are likely to remain weak as prices are flattening,” the source said.
Poor demand is likely to continue during 2014, with difficult economic conditions in parts of Europe and a greater desire for fuel efficiency, according to the source.
“In the long-term, grain prices and demand are the major fundamentals which will drive the market in 2014, until the new [feedstock] crop arrives...Q3 [of 2014] will be bullish though as there will be no new crop and demand will be good,” the source added.
The fuel ethanol market currently remains relatively unaffected by second generation product, with little available on the open market.
One source said that if commercial production increases in the future and the resulting fuel ethanol is classified as counting double towards biofuels mandates, this could put pressure on first generation fuel ethanol producers.
First generation biodiesel producers in Europe are already feeling the pressure from second generation biodiesel.
Demand for used cooking oil methyl ester (UCOME) has improved over the years as it counts double towards biofuels mandates, thus reducing the amount of biodiesel needed to reach European targets.
Although ADDs may close the door on competitive imports from Argentina and Indonesia, first generation biodiesel producers in Europe may still face difficult market conditions as second generation biodiesel production grows.
“We bought a lot of double counting material and next year we won't have much demand to buy more. We’ve got a lot in stock,” one buyer said.