China’s removal of the export tax rebate on renewable waste feedstock, such as used cooking oil, could help stop the alleged practice of repackaging virgin palm oil as waste, according to a report from the US Department of Agriculture.
The USDA said Nov. 26 that China’s decision earlier this month to remove a 13% tax rebate for UCO exports effective December would both lower the incentive for fraud and keep more material in the country for renewable diesel and sustainable aviation fuel production.
There are also reports that Chinese authorities are investigating abuses within the rebate system, where importers allegedly mixed palm oil acid with UCO to fraudulently claim tax rebates, the USDA said.
In a significant policy shift aimed at bolstering the domestic bio-based diesel industry, China announced Nov. 15 the termination of the export tax rebate for UCO, effective Dec. 1.
The announcement already triggered notable changes in the UCO market.
Prices for waste oil have seen a dramatic drop, with northern China’s export-quality brown grease falling 11% shortly after the policy disclosure. This reflected the anticipated reduction in export activity and a pivot toward enhancing domestic supply chains, as per the USDA.
Chinese UCO producers have set higher contract prices for December and January. Exporters previously used to consider the 13% rebate in their profitability calculations.
Key Chinese UCO producers set initial December and January contract prices at $1,000-$1,050/mt, an increase of $100-$150/mt over previous rates.
On the procurement side, waste oil prices dropped significantly. Export-quality brown grease in northern China, which averaged Yuan 6,800/mt ($940/mt) on Nov. 15 when the policy was announced, fell to Yuan 6,100/mt ($843/mt) by Nov. 18, the USDA said.
Several processing plants have paused waste oil collection, awaiting further developments. The potential volatility in coming months could lead to industry consolidation as smaller traders are acquired by larger companies, according to market sources.
FOB China UCO offers have been rescinded, with new offers priced at least $150/mt higher. This poses challenges for UCO traders that rely heavily on the rebate for profitability. The estimated rebate loss for exporters ranged $109-$117/mt, industry sources said.
Long-term implications
The policy is expected to have broader economic and strategic implications. By retaining more UCO within China, the government aims to stabilize domestic supply, potentially paving the way for future mandates on SAF and other biofuel-supportive measures.
China released in August a target for adopting SAF in its aviation sector, requiring at least 2% SAF blend by 2025 and increasing to 15% by 2030.
China would need around 2.5 million mt of SAF to fulfill the 2% mandate, which means it would need well above 3 million mt UCO as feedstock, a market analyst said.
The country shipped 2.12 million mt UCO in the first nine months of 2024, higher than the 1.406 million mt exported in calendar-year 2023, according to customs data.
It is also planning its first export quota for B24 biodiesel-blended marine bunker fuel for 2025, partly to support biofuel producers hit by EU antidumping tariffs earlier this year, market sources said.
This move could enhance China’s competitiveness in the global biofuels market, particularly as the EU has provisionally excluded Chinese SAF from proposed antidumping duties.
The export of UCO has been viewed as a low-value trade that exacerbates price competition internationally. Additionally, the policy aims to alleviate fiscal pressures amid China’s economic slowdown and address concerns over fraudulent rebate claims involving palm oil mixtures, according to the USDA.
Platts, part of S&P Global Commodity Insights, assessed UCO FOB North Asia flat day on day at $980/mt while UCO FOB Straits was flat at $950/mt Nov. 26. Platts assessed UCOME FOB North China flat day on day at $1,020/mt while UCOME FOB Straits was unchanged at $1,100/mt.
Source: Platts
