Indonesian UCO exports to remain, at least temporarily, disrupted

Production of waste-based biodiesel in Europe affected by curbs on South Asian palm oil shipments

Indonesia’s exports of used cooking oil (UCO) feedstock for the production of waste-based biodiesel in Europe will remain majorly disrupted, at least in the short-term, trade and analyst sources told Fastmarkets EnergyCensus amid continued uncertainty about how the South-East Asian country’s government will regulate external shipments of palm oil products.

UCO collectors, exporters and shipbrokers say that in the past few weeks they have been trying to make sense of the Indonesian government’s revisions to regulations, which required official clarification last week amid widespread confusion.

Until further clarity emerges on the exact requirements for waste-based feedstocks, however, considerably less material will make it out of the country’s ports than last year’s levels.

“Short-term disruption to all palm product exports will continue until there is some sort of clarity on Indonesia export policy,” said one analyst based in the region who requested anonymity, citing the sensitivity of the matter.

“The government does not seem to have a handle on this,” he said, adding that there have been “too many flip flops and new policies.”

The disruption in exports from Indonesia has come at a difficult time for European producers of FAME biodiesel, who have been experiencing major problems in getting regular and reliable supplies from China, which is beleaguered by the government’s prolonged, wide-ranging and severe lockdowns to combat the spread of Covid-19.

A shipbroker involved in arranging the transport of biofuels and their feedstocks from Asia told Fastmarkets EnergyCensus that exports had been majorly curtailed in recent weeks but that he expected the bottlenecks on exports to be unclogged within a few months.

“The value of the UCO trade to Indonesia is sufficiently large to warrant some type of clarity and relaxation of the rules, so we’d expect that to come fairly soon,” the shipbroker added.

At the end of May, the Indonesian government had begun granting export permits to palm oil exporters, a development that is also expected to free up exports of UCO and waste-based products that are derivatives of palm oil.

Director-General of Domestic Trade, Oke Nurwan, told news agency Bloomberg, that companies will be allowed to export three times as much as their domestic contribution of bulk cooking oil, and that the government may increase the volume of exports when domestic supply is seen as sufficient.

More export permit approvals are expected to be given in due course, according to the report cited by Fastmarkets Agricensus.

The volume of crude palm oil exports allowed is subject to how quickly individual companies fulfill their domestic market obligation (DMO).

The DMO requires exporters to supply a portion of their palm oil for the Indonesian government’s bulk cooking oil program.

As of Monday, May 30, the DMO was understood to be 20%, market sources told Fastmarkets Agricensus, though no official documentation had been published at time of publication.

Confusion has reigned over the past few weeks as to the extent that exports of UCO are covered by the same rules as crude palm oil, with the current perception among the trade that waste-based feedstocks will eventually be subject to considerable dispensation.

Indonesia’s new palm oil export arrangements: A guessing game

Last week, Fastmarkets Agricensus reported that freight sources had highlighted a lack of detail in Indonesia’s repeatedly-revised export arrangements, meaning that traders have been slow to book new fixtures while uncertainty remained around how the scheme is expected to work.

“Indonesia and India’s policy/export plan announcements seem to change by the day,” senior grain and oilseed commodity analyst at Futures International Terry Reilly told Fastmarkets Agricensus.

“Given the turbulent decisions by the Indonesian government over the last couple of months, market participants are tired of guessing and will most likely wait for the June export duty/levy announcement,” Fastmarkets Agricensus quoted Anilkumar Bagani, research head at Sunvin Group India, as saying.

UCO price surge

Indonesia’s export capacity is thought to be around 25,000-30,000 tonnes per month, making the country a major exporter to Europe where domestic availability of UCO is coming under increasing pressure because of massive inflation in vegoil prices.

Soaring costs for sunflower oil, rapeseed oil, crude palm oil, and soyoil are prompting the food processing and catering sectors to use less oil to begin with or to re-use oil more often before it is released as UCO, a major European supplier of waste oils told Fastmarkets EnergyCensus.

UCO feedstock costs around $1,810 CIF ARA, around 30% higher than on February 24, the day that global vegoil, energy, and biofuels markets became increasingly mercurial in view of Russia’s full invasion of Ukraine.

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