This past week, the market experienced an unusual development, something not observed since most pricing agencies began reporting values.
Both FAME 0 and RME traded at a discount to gasoil in the spot market. This shift was driven by an imbalance in price movements: while FAME 0 adjusted higher, it did not rise in tandem with the much stronger rally in gasoil prices.
This misalignment created a clear incentive for blenders to close prompt contracts, as biodiesel temporarily became the cheaper blending component. The change is visible when comparing the premiums‑market activity last week versus this week, with a noticeable increase in last week’s activity for spot liquidity, particularly for FAME 0 and RME. At the same time, blenders continue to benefit from the forward carry, with April premiums still pricing below May.
The resulting increase in demand goes beyond compliance with RED III and reflects what the market labels discretionary blending. However, this additional demand is capped by the B7 blend wall in Europe, limiting physical consumption.
As the supply of biodiesel cannot greatly increase week over week, we would expect to see the market moving to a higher price level with the increasing demand. Yet the blend wall constrains the market to an artificial equilibrium, resulting in both a lower price and a lower quantity consumed compared to what is expected in this scenario.
Potentially, we could export more biodiesel in order for biodiesel suppliers to benefit from the current competitiveness of its product. However, Europe remains the largest compliance‑driven biodiesel market in the world, so export opportunities only emerge when biodiesel trades at a discount to gasoil. Although this is currently the case, Europe still struggles to compete in external markets. In Asia, biofuel prices are far more competitive, and these markets are also more flexible regarding high‑ILUC feedstocks and impose fewer restrictions on crop‑based biofuels, leaving limited room for European flows.
Furthermore, many regions outside Europe have reacted more swiftly to the current market dynamics. Over the past month, countries such as India, Indonesia, the USA, Argentina, Brazil, and Thailand have strengthened biodiesel or ethanol blending mandates. Contrasting with Europe, where the transposition of RED III has already been delayed by a year and where regulatory adjustments tend to occur slowly on an EU and national level.
Under this rare and previously unseen market configuration, Europe should take note of how other global markets are responding. Increasing biodiesel blend levels would help ease the constraints imposed by the B7 blend wall and unlock the arbitrage opportunities that the current pricing environment presents, but that Europe is presently unable to fully capture.