By Shariq Khan and Chen Aizhu
NEW YORK/SINGAPORE- US imports of used cooking oil (UCO) from China are set to hit a record in the months ahead, even as regulatory uncertainty casts doubts over longer-term prospects of a trade that boomed last year, according to market participants.
US demand for UCO, a feedstock for biofuels like renewable diesel, has surged as federal and state governments launched incentives to support the industry as they aim to decarbonize transportation. That sparked such a frenzied rush to build new renewable diesel plants that US capacity more than doubled from 2021 to 282,000 barrels per day in 2023, according to government data.
The rapid surge flipped the US from a net exporter of UCO until 2021, to a net importer since 2022. US imports surpassed 1.36 million metric tons (mt) last year, up from about 400,000 mt in 2022, the data showed.
“Demand for UCO from US renewable diesel producers has grown much faster than domestic supply,” said Duane Dunlap, owner of renewables consultancy DNS Enterprises.
The supply gap has been readily filled by Chinese exporters, who needed a new outlet as demand from their top buyers in Europe shrank from mid-2023 amid complaints of artificially low prices that led to a European Union investigation. The EU began imposing tariffs on Chinese biodiesel imports this month.
Imports from China made up half of all the UCO purchased by US refiners last year, compared to a 0.1 percent share in 2022, customs data showed. This year through June, China accounted for roughly 60 percent of the roughly 1 million mt of UCO imported by the US the data showed.
EU tariffs will likely lift UCO shipments from China to the US even further in the months ahead, two senior biofuel traders in Singapore said.
“If it is not wanted in Europe, they will send it to the US “ said Adam Schubert, senior associate at fuel consultancy Stillwater Associates.
The US biofuels market is set to undergo major changes next year as the government prepares to transition from a program that rewards producers based on output volumes to a qualitative system that will award tax credits based on the fuel’s carbon intensity.
Since UCO is otherwise a waste product, its carbon footprint is lower than alternative biodiesel feedstocks, such as soybean oil and canola oil. That makes UCO more attractive for producers.
However, lobbyists representing US farm-states have called for an extension of the existing tax credits as prices for their commodities have slumped under the weight of lower-cost UCO imports. A bipartisan bill to extend the volume-based system through next year was introduced in the US House of Representatives last month.
Similar efforts have resulted in multiple extensions of the current system over the past decade. The credits were set to expire at the end of 2022, before the Inflation Reduction Act extended them through the end of this year. – Reuters
