NEW YORK/SINGAPORE, Aug 28 (Reuters) – U.S. imports of used cooking oil from China are expected to hit a record in the coming months, market participants said, even as regulatory uncertainties raise doubts about the longer-term prospects of a trade that boomed last year.
The rapid increase turned the U.S. from a net exporter of UCO through 2021 to a net importer since 2022. U.S. imports exceeded 1.36 million metric tons (mt) last year, up from about 400,000 mt in 2022, the data show.
“Demand for UCO from U.S. renewable diesel producers has grown much faster than domestic supply,” said Duane Dunlap, owner of renewable energy consulting firm DNS Enterprises.
Imports from China accounted for half of all UCO purchased by U.S. refiners last year, compared with a 0.1% share in 2022, customs data showed. This year through June, China accounted for about 60% of the roughly 1 million tonnes of UCO the U.S. imported, according to the data.
“If it’s not wanted in Europe, they send it to the U.S.,” said Adam Schubert, a senior associate at fuel consulting firm Stillwater Associates.
MIXED DEMAND SIGNALS
The U.S. biofuel market will see big changes next year as the government prepares to transition from a program that rewards producers based on the quantity of production to a qualitative system that awards tax credits based on the carbon intensity of the fuel.
Since UCO is otherwise a waste product, its carbon footprint is lower than that of alternative biodiesel feedstocks such as soybean oil and rapeseed oil. This makes UCO more attractive for manufacturers.
Similar efforts have led to several extensions of the current system over the past decade. The loans were set to expire at the end of 2022, but were extended through the Inflation Mitigation Act until the end of this year.
U.S. trade policy could also change dramatically after the presidential election in November, creating uncertainty for Chinese UCO exporters, said one of the Singapore-based traders.
Aside from the recent boom in UCO trade, other relations between the world’s two largest economies have also become increasingly strained in recent years, with both sides imposing mutual tariffs on their imports since 2017.
Another major shakeup for global UCO trade will come with Beijing’s widely anticipated announcement of production targets for Sustainable Aviation Fuel (SAF). Since SAF also uses UCO as a feedstock, China’s foray into this market could dry up its UCO export capacity in about five years, one of the traders in Singapore said.
“There is a lot of uncertainty right now about future policy, but unless the U.S. bans it – which we think is unlikely in the short term – UCO imports will increase,” said Zander Capozzola, vice president of renewable fuels at AEGIS Hedging.
“It’s just a question of where these imports will come from.”
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Reporting by Shariq Khan in New York and Chen Aizhu in Singapore; Editing by Liz Hampton and Stephen Coates
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