US imports of used cooking oil (UCO) from China are set to hit a record high in coming months, even as regulatory uncertainty casts doubt on the long-term prospects for a trade that boomed last year, according to market participants.
U.S. demand for UCO, a feedstock for biofuels such as renewable diesel, has surged as federal and state governments have rolled out incentives to support the industry, with the goal of decarbonizing transportation. The rush to build renewable diesel plants in the U.S. has doubled capacity from 2021 to 2023, reaching 282,000 barrels per day.
The rapid increase has seen the US shift from a net exporter of UCO through 2021 to a net importer since 2022. US imports topped 1.36 million metric tons in 2023, compared with 400,000 mt in 2022, the data showed.
Expanding UCO demand in the US drives imports
“Demand for UCO from U.S. renewable diesel producers has grown much faster than domestic supply,” said Duane Dunlap, owner of renewable energy consultancy DNS Enterprises.
The supply gap was quickly filled by Chinese exporters, who needed a new outlet as demand from their main buyers in Europe waned from mid-2023 amid complaints of artificially low prices that prompted a European Union investigation. The EU began imposing tariffs on Chinese biodiesel imports this month.
Imports of the product from China accounted for half of all UCO purchased by U.S. refiners last year. That compared with a share of 0.1% in 2022, according to customs data. Through June, China accounted for about 60% of the 1 million tonnes of UCO imported by the U.S., according to data.
EU tariffs are set to boost shipments of cooking oil from China to the US in the coming months, biofuels traders in Singapore say.
Adam Schubert, senior associate at fuel consultancy Stillwater Associates, said: “If they don’t want it in Europe, they’ll ship it to the US.”
Mixed demand signals
The U.S. biofuels market is set to undergo major changes next year as the government prepares to transition from a program that rewards producers based on production volumes to a qualitative system that will award tax credits based on the carbon intensity of the fuel.
Because it is a waste product, UCO has a smaller carbon footprint than alternatives such as soybean oil and canola oil. This makes UCO more attractive to producers.
Meanwhile, lobbyists representing U.S. farm states have called for an extension of existing tax credits as their commodity prices have fallen under the weight of lower-cost UCO imports. Last month, bipartisan lawmakers in the U.S. House proposed extending the volume-based system through next year.
Similar efforts have resulted in several 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.
Farmer groups and lawmakers express concerns about Chinese UCO supplies possibly containing palm oil, which has been linked to deforestation.
EPA Audits and Trade Tensions
The U.S. Environmental Protection Agency confirmed earlier this month that, for example, it has been auditing the supply chains of at least two U.S. renewable fuel producers amid concerns about fraudulent feedstock use.
Moreover, US trade policy could also change dramatically after the November presidential election in the country, which is consequently creating uncertainty for Chinese UCO exporters, said one of the Singapore-based traders.
In addition to the recent boom in UCO trade, relations between the world's two largest economies have become increasingly tense. Since 2017, the two sides have even imposed mutual tariffs on each other's imports.
Finally, last month, Republican presidential candidate Donald Trump’s running mate, JD Vance, called China “the greatest threat” facing the United States.
Another major disruption to the global cooking oil trade will come from Beijing’s widely anticipated announcement of SAF production targets. With SAF using UCO, China’s entry could reduce UCO exports by five years, according to a Singapore-based trader.
Source: Shariq Khan and Chen Aizhu | Notícias Agrícolas
