Potential palm oil ban may transform feedstock markets: Rabobank

Trade flows and crushing volumes in the EU will be transformed if the bloc follows through on a European Parliament vote in January to exclude palm oil from the bloc's recast of its renewable energy directive, a research note from Rabobank outlined this week.

Although the conclusions from the Dutch bank are scarcely surprising, their projections are a clear reminder of the tumult that would engulf global agricultural commodities markets should an exclusion of palm oil make it into the final RED legislation.

"If the EU really bans palm oil in biodiesel, rapeseed oil and soybean oil will be the likely winners, triggering changes in trade flows and crushing volumes as the EU-28 will need those alternatives for biodiesel production," Rabobank analysts Vito Martielli and Oscar Tjakra wrote in the note.

"Ethanol in the EU-28 and some other alternative fuels in the EU-28 may also receive a boost," they said.

The report added an exclusion would have major ramifications in Asia, with Indonesia and Malaysia needing to find alternative crude palm oil export markets for up to 2.6 million mt.

However, as the research note acknowledges, the European Parliament's proposed exclusion isn't a done deal and is likely to amended considerably during Trialogue discussions in view of threats by producing countries to refer the matter to the World Trade Organisation.

Rabobank said that if palm oil was replaced only with rapeseed, an additional EU crushing of 8.2 million mt would be required and the feedstocks would need to come from additional EU rapeseed acreage.

Because an almost 30% expansion of the EU rapeseed crop would not be possible, in Rabobank's view, significantly higher rapeseed imports would be required.

The bank points out that the EU already accounts for 4 million mt, or 25%, of the global rapeseed imports, but would need to reach a 75% market share of international trade in rapeseed to replace palm oil, should it be excluded.

The research added that rapeseed oil imports would have to increase to the extent that almost all of the 4 million mt of global rapeseed oil trade to be shipped to the EU.

An alternative scenario is that biodiesel is imported from Argentina, although this would be complicated by another EU investigation that last month was launched to assess unfair subsidies to Argentine biodiesel exporters.

Thresholds

And the use of crop-based biofuels is subject to a major caveat in the final RED II legislation that will likely to cap the use of crop-based biofuels at 7% of overall consumption or below that level.  

Waste oil, which is already a key feedstock for biodiesel, won't fill a large share of any gap left by palm oil as this "is not an endless market and has already showed slowing growth in the most recent years," the research note added.

EU targets

Convulsions in the EU's biodiesel market would likely presage an increase in the use of ethanol, as the EU-28 only has a biofuels target, which does not differentiate between biodiesel and ethanol.

However, the impact of this would be limited, due to the smaller volumes of gasoline in the EU market [compared with biodiesel] and the fact that individual EU countries still have national obligations for differentiated biofuels.