Rapeseed oil prices rise on UK plant explosion, EU bio-demand

Dutch rapeseed oil prices jumped to a three and a half month high on Friday as heated demand from the European biodiesel market, an explosion at a UK-based ADM oilseed plant and freshly booked Argentine SME cargoes created a bullish cocktail at the end of the week.

Oil loading for August-September-October traded at the offer level of €780/mt FOB DM early afternoon on Friday, up €12/mt on the day, and the highest level for spot oil since early March.

“It’s just a perfect storm everything comes at once.... palm oil up, seed firm, reports of an explosion at the ADM plant at Erith,” a UK-based broker told Agricensus.

Explosion

A large blast was heard on Friday morning at the south-east London based rapeseed crusher which processes around 1 million mt of rapeseed a year and sells an estimated 385,000 mt of oils a year, making it one of the UK’s largest oilseed processing plants.

“At approximately 9 am on June 19, 2020, an explosion occurred at the oilseed crushing plant located in Erith, UK. The explosion happened in the extraction area of the facility,” an ADM spokesperson told Agricensus.

“Three contractors who were working outside, in an adjacent silo, suffered injuries and were taken to a local hospital where they are being treated,” the company said, adding that it currently does not know the cause of the explosion.

“The safety and health of our colleagues and the community where we operate is our priority, the fire brigade is currently working onsite, and the plant was evacuated and shut down.”

Biodiesel demand

The explosion gave another boost to rapeseed oil prices which have been on a steady rise since early April as demand from the biodiesel sector – which takes in around half of Europe’s rapeseed oil production – is coming back.

The biodiesel market shuttered after EU member states called for severe lockdown measures to curb the spread of Covid-19, which caused road fuel demand to plummet over 70% in April.

However, with those measures now easing across the EU, and the Schengen area reopened for the summer holidays, diesel demand in Europe is on track for a firm rebound as it aims for a V-shaped recovery.

The premium of rapeseed-oil methyl ester (RME biodiesel) over its feedstock – a key indicator for viability of EU biodiesel production – was quoted on Thursday at $60/mt, up from $17/mt earlier this month, as rallying RME prices outpaced RSO prices.

“Bio is back in business, and on the other side, crush margins for the oil plants are still not satisfying,” a German broker said.

That view was echoed by a Dutch broker who said: “the rally is due to the fresh demand from the biodiesel sector, lower rapeseed meal prices and because the farmer does not sell his rapeseed, also because of the bad margins for the crush.”

European rapeseed meal prices have been pressured by the abundance of soymeal volumes as European crushers have been ramping up their soybean crush.

As the same time, European rapeseed farmers are sitting on their seeds with just several months left in the current marketing year as they aim to sell at even higher prices after an already tight season for the oilseed.

Paris rapeseed futures for August delivery jumped €3.75/mt by time of press to €380.75/mt on the Euronext exchange, its highest level since February.

Argentine SME

Further signs of the recovery of the European biodiesel market came as European traders booked three cargoes with soyoil methyl ester (SME biodiesel) on Friday morning, which would be the first ones booked since the pandemic hit Europe in March.

After weeks of rumours of fresh demand, three 30,000-mt cargoes were booked at an FOB Up River price of €660/mt, around $740/mt, and at a $85/mt premium to Argentine soyoil.

The first cargo is set to sail on July 1, with the second one on July 10, and the third one to be shipped on August 10.

“A couple of cargoes, say 60,000 mt, it's a drop in the ocean compared to what the market can absorb,” a Swiss broker said.

If there is no second Covid-19 outbreak “it should actually be a decent driving season,” potentially better than last year, he added.

Argentina has one of the world’s largest nameplate capacities for biodiesel production and was last year allowed to resume tariff-free exports into the EU of up to 1.2 million mt per annum from eight selected companies, following a review and decision by the European Commission in February 2019.

The eight companies are subject to a minimum import price for the tariff-free quota based on average feedstock soybean oil prices published by the Argentine government, otherwise they attract countervailing duties of between 25%-33.4%, depending on the selling counterparty.