EU's 2% SAF Mandate Fuels HVO/UCO Boom; China's Cost Edge Shines
HVO/SAF:
According to Longzhong Information data, as of June 11, 2025, the FOB prices for European Hydrotreated Vegetable Oil (HVO) and Sustainable Aviation Fuel (SAF) were $2,002/ton and $1,949/ton, respectively. This represents an increase of 13.97% and 11.60% compared to their lowest points since Q2 2025. As reported by Argus on May 29, this rise is primarily driven by strong seasonal demand in Europe ahead of the summer flight season, boosting SAF demand, with higher-quality HVO experiencing a larger price increase.
Feedstock UCO:
Longzhong Information data shows that as of June 12, 2025, prices for gutter oil and yellow grease (UCO) in East China were ¥6,250/ton and ¥6,650/ton, respectively, up 3.31% and 2.31% from their Q2 2025 lows. Driven by rising overseas demand for HVO/SAF, recent inquiries for feedstock UCO at Chinese ports have been active, pushing UCO prices higher. We believe that as the EU implements its 2% SAF blending mandate starting in 2025, SAF demand will grow. Coupled with the current situation where European HVO prices are higher than SAF, there remains room for further SAF price increases. Increased SAF demand is expected to drive UCO prices higher, leading to a market boom across the entire UCO-HVO/SAF value chain.
SAF: EU Gradually Implements 2% Blending Mandate; Chinese SAF Cost Advantage Stands Out
The EU has rolled out measures to achieve its 2% SAF blending target. Reports from Advanced Biofuels USA and Reuters indicate that some European airlines have begun imposing "environmental surcharges" or SAF fees ranging from €6 to €20 to pass on the increased costs of blending SAF. On June 11, the EU proposed subsidies for airlines purchasing over 200 million liters (approx. 160,000 tons) of sustainable aviation fuel. However, these measures are still insufficient to cover the full cost increase of using SAF in Europe, primarily due to high compliance costs. According to IATA, Europe is expected to purchase 1 million tons of SAF in 2025 at an estimated cost of $1.2 billion. Yet, producers or suppliers, to avoid EU penalties for non-compliant SAF sales, are expected to charge airlines an additional ~$1.7 billion in compliance fees, effectively doubling the SAF procurement cost for European carriers.
Given this context, China possesses a significant advantage in feedstock: abundant and lower-cost Used Cooking Oil (UCO). This results in lower Chinese SAF production costs, positioning China to effectively address the EU's SAF supply shortfall and potentially capture a large market share in the EU due to its cost competitiveness.
SAF Beneficiaries: Jiangsu Jiaao, CECEP Environmental Protection, Fujian Longyan Longyan New Energy Co., Ltd. (or Excellence New Energy), Pengyao Environmental Protection.
UCO: Future Steady Growth in SAF Demand Expected to Drive UCO Demand
Recovering end-demand in the EU is prompting SAF plants to actively procure feedstock, driving up prices for various grades of Chinese UCO. Transactions for Chinese UCO (for hydrotreating) are the most active, with particularly strong demand for high-quality UCO. The purchasing levels from both domestic and international HVO and SAF plants are continuously rising, pushing up prices even for standard-grade UCO.
Indeed, Chinese UCO demand has shown an upward trend since 2025. This is driven by two main factors:
Chinese UCO has strong carbon reduction attributes. Demand is increasing from downstream SAF and biodiesel, while new domestic UCO production capacity is constrained, leading to rising market activity.
Indonesia restricted UCO exports starting January 2025 to support its domestic biodiesel industry. Consequently, despite geopolitical trade tensions, international demand for Chinese UCO continues to grow. According to Longzhong Information, UCO exports from January to April 2025 reached 807,200 tons, a year-on-year increase of 5.65%.
Therefore, with sustained growth in SAF demand anticipated, the UCO feedstock market is poised for an upturn.
UCO Beneficiaries: Shandong High Speed Renewable Energy Group, Landcent Environment.