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Flows of UCO from China have already faced intense scrutiny from both the EU and the US, two regions that have also unveiled ambitious programs to support the adoption of SAF over the next three decades.
A round of US trade sanctions unveiled earlier in the week had been expected to impose tariffs on both Chinese electric vehicles and UCO flows, but ultimately stopped short of including the waste oil.
That move came just months after the EU announced that it was investigating similar flows to the bloc.
US trade sources have come to refer to Chinese trade flows as BUCO – meaning ‘barely’ used cooking oil – amid allegations that the supposed waste-based flows have been cut with palm oil or other near-virgin vegetable oils.
But a news article published in May highlighted that investors were channeling billions of dollars of investment into SAF production in China, in a move that could make the authenticity of Chinese UCO flows a moot point.
The article said that investors were expecting a potential blending mandate for as much as 5% being introduced by 2030, while China itself has already delivered some clear signs of its intent to move into the SAF sector.
The East Asian country’s aviation authority set up a working group which issued recommendation number 5517 to the first session of the 14th National People’s Congress, which ran March 5-13 last year.
In response to the recommendations to boost SAF production, Chinese authorities confirmed that the proposals would be added to the 14th Five-Year Plan, spanning the 2021-25 period – which already includes plans to build another 30 airports across China.
Alongside that, Junheng Biotech confirmed in a press release published on April 1 this year that its HEFA-SPK SAF fuel had been approved by China’s civil aviation authority for use in aircraft, making it the first private petrochemical company to attain approval for commercial use.
Hydroprocessed esters and fatty acids (HEFA) is one of the more established pathways toward producing SAF from vegetable oils, used cooking oils and animal fats.
How is SAF supply meeting demand and what incentives are in place to boost production and adoption? Access our data analysis on US SAF production patterns and credit pricing trends.
According to the latest data available from the Chinese customs authority, close to 140,000 tonnes of UCO left China in March this year, with the bulk of the volume, 65,189 tonnes, heading to the US.
That figure in itself was up by 72% compared with the corresponding period in 2023, with the US ramping-up production of renewable diesel oil at key facilities in California and across the US Gulf.
Another 53,454 tonnes headed to Singapore, where Finnish biofuel major Neste has a newly enhanced biorefinery, capable of producing as much as 1 million tonnes per year of SAF.
Overall, however, the total volume of UCO exports dropped by 11% from the previous year’s figure. While most sources spoken to by Fastmarkets said that it was unlikely that there would be enough scale to affect flows in the short term, with new facilities coming online, there could be substantial changes to trade flows and price dynamics.
“It will have no effect on regular palm, but a huge effect on waste and sludge,” one Malaysia-based trader told Fastmarkets, with the wider Asia region emerging as a key supplier of used cooking oil to the nascent European and US production of renewable diesel and SAF.
“I assume, when SAF is implemented fully, the price of sludge oil could be higher than crude palm oil [CPO] because there will be more demand than supply,” the source said. A second source agreed that an inversion in prices would be a side-effect of adopting feedstocks for SAF use.
The price of crude palm oil on a CIF Rotterdam basis was assessed at $980 per tonne, with UCO assessed on the same basis at $972.50 per tonne, according to Fastmarkets data. This was a much tighter range compared with the $180 per tonne premium that CPO commanded over UCO in early March.
Significant mandates and incentives across the EU and the US have already set a path for the adoption of SAF across the two economic powerhouses. Adding China to the mix would have profound implications for assumptions about waste feedstock supplies and availabilities.
The US launched a 35 billion gallon grand challenge to promote the development of SAF across the domestic market between now and 2050, while the EU committed to a hugely ambitious plan to build a 70% SAF blending mandate over the same timeframe.
Both these initiatives would amount to millions of tonnes of SAF being needed in the years ahead, so the addition of even a 5% mandate into China would add further pressure to that scenario.
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