China’s biodiesel producers seek new outlets amid hefty EU tariffs

Chinese biodiesel producers are seeking new outlets in Asia for their exports and exploring producing other biofuels as supply to the European Union, their biggest buyer, dries up ahead of anti-dumping tariffs, biofuel executives and analysts said.

The EU will impose provisional anti-dumping duties of between 12.8 percent and 36.4 percent on Chinese biodiesel from Friday, hitting over 40 companies including leading producers Zhejiang Jiaao, Henan Junheng and Longyan Zhuoyue Group in an export business that was worth $2.3 billion last year.

Some larger producers are eyeing the marine fuel market in China and Singapore, the world's top marine fuel hub, as they seek to offset already falling biodiesel exports to the EU, biofuel executives said.

Exports to the bloc have fallen sharply since mid-2023 amid investigations. Volumes in the first six months of this year plunged 51 percent from a year earlier to 567,440 tons, Chinese customs data showed.

June shipments shrank to just over 50,000 tons, the lowest since mid-2019, according to customs data.

At their peak, exports to the EU reached a record 1.8 million tons in 2023, representing 90 percent of all Chinese biodiesel exports that year. The Netherlands was the top importer in 2023, soaking in 84 percent of China's biodiesel shipments to the EU, followed by Belgium and Spain, Chinese customs figures showed.

Chinese producers of biodiesel have enjoyed fat profits in recent years, making the most of the EU's green energy policy that grants subsidies to companies that are using biodiesel as a sustainable transport fuel such as Repsol, Shell and Neste.

Many of China's biodiesel producers are privately-run small plants employing scores of workers processing waste oil collected from millions of Chinese restaurants. Before the biodiesel export boom, they were making lower-value goods like soaps and processing leather products.

However, the boom was short-lived. The EU began in August last year investigating Indonesian biodiesel that was suspected of circumventing duties by going through China and Britain, followed by a 14-month anti-dumping probe into Chinese biodiesel believed to be priced artificially low and undercutting local producers.

Anticipating the tariffs, traders stocked up on used cooking oil (UCO), lifting prices of the feedstock, while prices of biodiesel sank in view of shrinking demand for the Chinese supply.

"With hefty prices of UCO partly supported by strong US and European demand, and free-falling product prices, companies are having a tough time surviving," said Gary Shan, chief marketing officer of Henan Junheng.

Prices of hydrotreated vegetable oil, or HVO, a main type of biodiesel, have halved versus last year's average to the current $1,200 to $1,300 per metric ton and are off a peak of $3,000 in 2022, Shan added.

With low prices, biodiesel plants have cut their operations to an all-time low of under 20 percent of existing capacity on average in July, down from a peak of 50 percent last seen in early 2023, according to Chinese consultancies Sublime China Information and JLC.

Meanwhile, shrinking biodiesel sales are boosting China's UCO exports, which analysts predict are set to touch a new high this year. UCO exports soared by two-thirds year-on-year in the first half of 2024 to 1.41 million tons, with the United States, Singapore and the Netherlands the top destinations.

While many smaller plants are likely to shutter production indefinitely, larger producers like Zhejiang Jiaao, Leoking Enviro Group and Longyan Zhuoyue are exploring new outlets including the marine fuel market at home and in the important hub of Singapore, which is using more biodiesel for ship fuel blending, according to the biofuel executives.

One of the producers, Longyan Zhuoyue, agreed in January with COSCO Shipping to use more biodiesel in marine fuel.

Companies would also accelerate planning and building of sustainable aviation fuel (SAF) plants, executives said. China is expected to announce an SAF mandate before the end of 2024.

They have also been scouting for new biodiesel clients outside the EU bloc, in Australia, Japan, South Korea and Southeast Asia where there are local mandates for the alternative fuel, the officials added.