Canada: Used cooking oil seen as canola risk

The importation of biofuel made from Chinese used cooking oil threatens the domestic market for Canadian canola, says an industry executive.

“It’s a big deal,” said Chris Vervaet, executive director of the Canadian Oilseed Processors Association, which represents most of the crushers operating in Canada.

“It’s potentially displacing a lot of the demand that we’re going to need going into a very murky 2025 and beyond.”

He called it a “very big risk” to the canola industry, undermining what was supposed to be a substantial market diversification opportunity for the crop.

Every one million tonnes of renewable fuel consumed in Canada that is made from used cooking oil (UCO) displaces 2.5 million tonnes of canola seed.

To put that in perspective, that would be the size of Canada’s top export market in most years.

Canadians consumed 1.72 million litres of renewable diesel and biodiesel in 2023, according to a new report commissioned by Advance Biofuels Canada.

About 1.09 million tonnes of that were imported, with almost all of it coming from the United States, according to official trade data.

Vervaet said it is safe to assume that much of that was made with UCO, which has become the most popular feedstock in the U.S. due to its low carbon intensity score.

The U.S. imported 1.37 million tonnes of UCO in 2023, up from barely anything a few years earlier. Imports through the first eight months of 2024 have already topped that volume.

The imported UCO isn’t sitting well with commodity groups. American farm organizations are backing the Farmer First Fuel Incentives Act, which would restrict eligibility for the new 45Z Clean Fuel Production tax credit to domestic feedstocks.

Vervaet said there are also concerns about the authenticity of the imported UCO, with allegations circulating that some of it has been fraudulently mixed with palm oil.

“We just have some questions and some suspicions about whether this is actually used cooking oil,” he said.

China appears to be taking steps to restrict its UCO exports. It is terminating a 13 percent export tax rebate on the product effective Dec. 1, according to a new report by the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS).

“In the near-term, the policy will disrupt UCO exports, ensuring a larger supply remains within China,” stated the report.

There is speculation that China is taking a pre-emptive step in anticipation of coming U.S. tariffs on the product.

However, according to the USDA report, the move comes at the behest of China’s biomass-based diesel industry, which argued that the rebate encouraged UCO exports over domestic consumption of the feedstock.

Leading Chinese UCO producers immediately increased their prices in response to the news.

“Industry sources noted that f.o.b. China UCO offers were rescinded, with new offers priced at least US$150 per tonne higher,” stated the FAS.

That represents about a 17 per cent increase over the January contract price.

“This change poses challenges for UCO traders who rely heavily on the rebate for profitability,” the FAS said in its report.

The estimated rebate loss for exporters ranges from $109 to $117 per tonne.

“Analysts anticipate significant price volatility in the coming months, leading to potential industry consolidation as smaller traders are acquired by larger firms,” stated the report.

China has exported slightly more than two million tonnes of UCO so far in 2024, with about half of that volume heading to the U.S.

The FAS suspects China is hoping to replace those low-value feedstock exports with higher-value renewable diesel and sustainable aviation fuel (SAF) exports.

Nearly 40 countries have SAF mandates, but China is not one of them. The FAS thinks this move might signal the introduction of SAF mandates in that market.

Vervaet said Canada’s canola crushers are trying to figure out what all this means to them.

If China exports less UCO to the U.S., it could create an opportunity for canola oil in that market.

However, he doubts that the elimination of the export tax rebate will be enough to stem the flow of UCO to the U.S.

“It’s still a modest measure,” he said.

“It’s not necessarily going to lead to an immediate halt of used cooking oil exports to the North American marketplace.”

However, the bigger concern is that China has experienced “massive growth” in its renewable diesel production capacity and is starting to turn its attention to the nascent SAF sector.

He expects China’s UCO will factor prominently in the feedstock mix for those fuels.

Vervaet anticipates much of China’s biofuel production will be destined for export markets such as Canada, based on conversations he has had with folks in the sector.

“That Chinese flow is a definite potential and a big risk for Canadian canola here in our own backyard,” he said.

“There is already a lot of Chinese used cooking oil displacing canola demand today.”

And there doesn’t appear to be a shortage of the product. The FAS estimates China’s UCO collection volume ranges from 3.95 to 5.53 million tonnes per year.

Tags: China, canola, Canada, biodiesel, cooking oil, Market, biofuel, UCO