The number of hydrotreated vegetable oil (HVO) plants in China has increased in the last two years, according to a report by the United States Department of Agriculture (USDA).

“The export of used cooking oil (UCO)-based biodiesel and HVO continued increasing momentum in the first half of 2023 as robust demand from the European Union (EU) spurred biodiesel producers to increase production,” the USDA said in the 1 September report.

According to the USDA’s Foreign Agricultural Service (FAS)’s People’s Republic of China: Biofuels Annual, HVO plants in China have a combined production capacity of 3bn litres/year with an additional 1.2bn litres/year capacity planned.

“Nearly all plants are export-orientated to take advantage of EU tax policies. HVO production capacity is estimated to have grown 1bn litres every year starting in 2021, and the same is expected in 2023 with an estimated 3bn litres this year,” the USDA.

China’s biodiesel production was forecast at 1.9bn litres, 28% up on the previous year due to increased exports and domestic consumption.

“In the first half of 2023, China produced and exported higher volumes at very competitive prices,” the USDA said.

China replaced Argentina as the primary export supplier of biodiesel to the EU in the fourth quarter of 2022, the report said.

“Biodiesel and HVO exports are projected to continue surging in 2023, due to the EU and its double-counting provisions for UCO-based biofuels (both biodiesel and HVO) of the EU’s Renewable Energy Directive (REDII) and support by China’s 70% VAT rebate. Hainan and Fujian provinces top the export list,” the USDA said.

Average biodiesel prices for exports continued to be strong at US$1,500 (RMB 10,500)/tonne in early 2023, up more than 30% compared to 2021, with even higher prices for HVO.

From January-May 2023, China’s biodiesel exports increased 70% year-on-year, with the vast majority shipped to the Netherlands and Belgium.

However, this trend could slow in the second half of 2023 following regulatory action in May by the International Sustainability and Carbon Certification (ISCC), which withdrew certificates from five Chinese companies over concerns they were using imported palm oil from Malaysia and Indonesia rather than local UCO feedstock, the report said.

The same issue was likely to affect HVO shipments to Europe, according to the report.

“The record high volume of exports could be disrupted as European importers are reportedly more reluctant to import product from the PRC following the 5 May ISCC regulatory action,” the USDA said.