Biofuel Market Analysis

UCO: EU RED III traceability requirements are creating a bifurcation: Asian oversupply vs. European price premiums. US 45Z has simultaneously blocked US-bound flows, reshaping global UCO trade.

Tallow: US RD capacity (~6B gal/yr) driving tallow demand surge. Domestic prices at historic highs. Traditional soap/chemical industries accelerating substitution.

SBO: Reuters reports US to finalize 2026 RVOs by early March + likely withdrawal of import penalty (Half-RIN). Trump's 2/10 biofuel support tweet triggered SBO futures rally. Gulf BFT/UCO prices tracking SBO futures higher.

Corn: Feb WASDE neutral; market "stuck in the mud." RFS mandate finalization could support ethanol demand → corn prices. S. America weather and 2026/27 planting intentions are next directional drivers.

EU ReFuelEU Aviation (2025: 2% SAF, 2030: 6%, 2050: 70%) is structurally increasing global SAF demand. Currently, most SAF relies on HEFA processing (UCO/Tallow feedstock), meaning SAF growth directly impacts UCO/Tallow S&D. Long-term, commercialization speed of e-fuel (PtL) and Alcohol-to-Jet technologies will be the key variable. In Asia, Japan leads SAF policy, followed by Korea and Singapore.

Foreign UCO is effectively being pushed out of the US market. With 45Z limited to N. American feedstock from 2026, Chinese/SE Asian UCO flows to the US will structurally decline. Asian UCO manufacturers need to pivot to Europe/intra-Asia strategies, while Australian/Brazilian tallow exporters must diversify to Asia/Middle East.

Reuters (1/15) reports the US will finalize 2026 RVOs by early March and likely withdraw the import penalty (Half-RIN). If Half-RIN is withdrawn, some window remains for foreign UCO/Tallow in the US, but the 45Z N. American restriction persists.

Supply Tightening: China's VAT rebate removal, US tariffs (125%), and growing domestic SAF consumption are rapidly reshaping the Asian UCO export landscape. From April 2025, Chinese UCO exports are projected to fall to 150-200K MT/month (20-40% decline), creating simultaneous price pressure and supply uncertainty for Korean importers.

Structural Price Escalation: FOB Asia UCO prices hit $1,010-1,015/MT in January 2025 (2-year high). Policy-driven demand from EU SAF mandate (2% in 2025) and Korea SAF mandate (1% in 2027) is structurally embedding an upward price trajectory over the medium-to-long term.

Fraud Risk Management Essential: Over 1/3 of global UCO is suspected of adulteration. ISCC certification verification, chemical analysis (iodine value, wax content), and full supply chain traceability are critical risk management priorities for Korean importers.

Strategic Recommendations: (1) Diversify away from China dependency (50%+) — build multi-sourcing from Thailand, Indonesia, Japan (2) Secure term contracts for volume and price stability (3) Leverage PTU toll-processing export/re-import model to maximize value (4) Build early feedstock pipeline ahead of 2027 SAF mandate

US RD Industry Restructuring: Phillips 66, CVR Energy cutting utilization rates on margin deterioration. DGD optimizing operations. New facility investment largely on hold until policy clarity.

SAF Pivot Accelerating: Neste, TotalEnergies, ENEOS leading the shift from RD to higher-margin SAF production. This intensifies premiums for low-CI, high-quality UCO/Tallow feedstock.

Grain Major Vertical Integration: ADM, Bunge, Cargill deepening soy crush → SBO → biofuel feedstock supply chains while simultaneously entering UCO/Tallow collection & trading.

Asian Players Update: ENEOS is leading intra-Asia UCO/Tallow procurement with commercial SAF production and an HVO Plant targeted for 2030 completion. Meanwhile, SK Energy has temporarily suspended its Ulsan HVO Plant construction, adding uncertainty to Korea's biofuel investment outlook. Korea's 2027 SAF mandate will be an additional demand catalyst.

Korea & Japan: Systematic food hygiene frameworks and high collection standards enable consistent premium-quality UCO (FFA ≤3%, MIU ≤1%). Optimal for SAF feedstock; strong buyer preference for long-term offtake.

SE Asia (Malaysia & Indonesia): Palm-based UCO enables large volumes, but quality varies by collection channel. ISCC certification and QC improvements underway.

China: World's largest UCO supplier, but wide quality variance by region and collector. Gutter oil contamination risk, uneven fatty acid profiles, and RED III certification difficulties are persistent discount factors. Certified large-scale suppliers offer acceptable quality, but small collectors require caution.

Price Premium Reference: Korea/Japan UCO commands $30-80/MT premium over Chinese origin. SAF-eligible material can fetch an additional $50-100/MT premium.