OUTLOOK ’18: Global trade moves signal murky year ahead for biofuels

LONDON (ICIS)–Changes in antidumping (ADD) regulations in the biodiesel market globally in the past year have left the outlook for European biodiesel murky for 2018, with concerns raised about a possible drop in production in the region as a result of the new ADD landscape.

Meanwhile, Europe’s fuel ethanol players will have wary eyes firmly fixed westwards in 2018, as a series of trading relationships with the US, Canada and the Mercosur countries are in a state of flux. A more outward-looking trend may be a wider theme, particularly with changes to sugar regulations which let EU sugar producers – a number of which produce ethanol – obtain access to the global market.

Turbulent waters ahead for European biodiesel
The global biodiesel market saw a huge shake-up of its antidumping duty (ADD) landscape during 2017, with European ADDs on Argentinian biodiesel being reduced, while new ADDs and anti-subsidy measures were placed on biodiesel from Argentina and Indonesia entering the US.

The European Commission originally placed duties on Argentinian soybean methyl ester (SME), as well as Indonesian palm oil methyl ester (PME), in 2013.

According to the Commission, producers were given an unfair advantage because of the differential export tax policies in the countries, arguing that this meant export taxes on biodiesel products were cheaper than those on the raw materials, soybean oil and crude palm oil (CPO).

The tariffs were due to end in November 2018 but producers from both countries lodged complaints with the world trade organisation (WTO). Argentina’s complaint was successful and the EU was told to bring the duties in line with the general agreement on tariffs and trades 1994 and the anti-dumping agreement.

This came into force in the second half of 2017, with the ADDs reduced from the original 22.0-25.7% to 4.5-8.1% after 20 September 2017.

Scroll along or click the arrows to see the ADD timeline year by year

European players raised concerns that an influx of SME into the region could significantly reduce demand for the traditionally more expensive rapeseed methyl ester, which is the primary biodiesel produced in Europe.

There is likely to be little effect on RME buying interest during Q1 2018 because this is typically a high period of demand for that product, which has a lower freezing point than summer-grade biodiesels like PME and SME.

However, market participants expect RME demand to dip during the second quarter of 2018, when players start to switch to summer grade biodiesel.

Market participants in Europe noted that limited buying interest could see RME production drop in the region in 2018.

Meanwhile, in 2017 the US placed anti-subsidy duties on Argentinian and Indonesian biodiesel, ranging from 71.45-72.28% for soy-based biodiesel from Argentina, and 34.45-64.73% for palm oil-based biodiesel from Indonesia.

These measures are on top of proposed anti-dumping duties announced in October, also affecting Argentinian and Indonesian biodiesel.

Before these measures came into force, the US was the primary destination for exports from Argentina.

As a result, European biodiesel players expect even more material to enter the European market from Argentina in 2018.

There is also a pending WTO decision on the EU’s ADD’s against Indonesia. If the latter’s complaint is successful, 2018 may see a reduction in those ADDs as well, which could open the European market to increased PME imports before the end of 2018.

Ethanol’s global trade battles and local policy problems
Europe’s protection against waves of cheap US ethanol is coming down next February when EU antidumping duties officially expire.

This removes a key ethanol trade barrier, though there are some hopes that China’s pull on US ethanol will remove the sting.

A war of words regarding the Mercosur group of South American nations was ignited in 2017, with trade bodies in Brazil and Europe exchanging verbal blows about the nature of the upcoming trade deal and how much tariff-free product could flow to Europe.

The Canada-EU trade deal (CETA) was a worry in early 2017 and will be watched closely this year, though so far it has not proved the threat to the sector some had feared it could be.

This complex global trade environment comes in tandem with EU policy changes which pose a threat to bioethanol made from crops, which is the vast majority of ethanol production in Europe.

At the same time, there are challenges for the ethanol intended to replace it in the long run.

Europe’s flagship cellulosic ethanol plant was facing closure in November 2017 following the collapse of its parent company, the Mossi & Ghisolfi (M&G) group in the US. The Beta Renewables-managed Crescentino biorefinery, the first commercial facility in the world meant to produce up to 75m litres of ‘second-generation’ ethanol a year from straw and energy crops. Local press reports in December indicated a ray of hope, with an Italian politician claiming Italian refiner Eni could be interested in purchasing the plant.

Nevertheless the political landscape leaves a sizeable question mark hanging over that nascent segment of the biofuel market, which the EU and countries such as the UK had up until recently been leaving a key role in plans to hit biofuel mandates.

A prime example of the sector’s struggle over policy is the UK-based Vivergo Fuels plant. It shut in late November 2017 to carry out early maintenance for an indefinite period, with management suggesting it needed more policy certainty (i.e. the fuel blend with more ethanol, E10) to continue operating. The fuel ethanol market is all eyes for how soon, if at all, it will restart in the New Year.

Finally, it will also become clearer in 2018 whether the world’s sweet tooth is tempted by European sugar, following the end of the EU’s sugar regime from October 2017, and whether, it has potentially sucked away some of the feedstock previously earmarked for ethanol, in doing so tightening market supply.

By Samantha Wright and Vicky Ellis