Europe’s Small Tankers and Biofuels insight

Europe’s Small Tankers and Biofuels insight – January 2025

Mediterranean Market: A Fragile Equilibrium

The Mediterranean small chemical tanker market struggled to establish a clear direction in January, with sporadic demand failing to provide sustained support for freight rates. While the start of the year typically brings a degree of optimism, this was not reflected in market fundamentals, as cargo availability remained inconsistent, limiting any real upward momentum. Shipowners, having endured a challenging six-month period, entered January with expectations of a more active first quarter. However, as the month progressed, it became evident that those hopes were premature, with market sentiment deteriorating in the latter half of the month.

Despite the 70% increase in EU ETS costs from January 1st, freight rates remained stagnant, as demand failed to materialize at levels necessary to justify upward movement. The decline in cargo volumes, particularly in the western Mediterranean, led to increased competition among owners, with some adjusting their offers downward to secure employment, particularly for smaller parcel sizes where demand was inconsistent. Although sporadic movements helped absorb some tonnage, the absence of sustained inquiries prevented any meaningful tightening of the market.

The uncertainty surrounding biofuel shipments also weighed on sentiment, with key players adopting a wait-and-see approach rather than committing to consistent trade flows. FAME, UCO, POME, and HVO cargoes surfaced periodically, but volumes remained insufficient to drive fundamental change. Owners faced the challenge of either holding firm on rates or conceding to charterers willing to wait for lower offers.

Northwest Europe: Holding the Line

In contrast, the Northwest European market maintained relative stability throughout January. Cargo flows remained steady, keeping freight levels unchanged from December 2024. While this was not a bullish development, it provided shipowners with a degree of consistency, particularly in the small chemical tanker segment, which remained well-employed despite an absence of significant spot market growth.

Weather disruptions intermittently impacted vessel schedules, but these delays did not create any sustained rate spikes. Charterers maintained a position of relative strength, benefiting from a well-balanced tonnage list and stable cargo availability.

However, underlying conditions suggest that any downward shift in cargo volumes could quickly tilt the balance in favor of charterers, further limiting owners’ ability to push for higher rates. Unlike the Mediterranean, where weak demand remains the primary concern, North West Europe’s challenge lies in the lack of a catalyst for rate recovery. If weather-related disruptions in February remain minimal, shipowners could find themselves in an increasingly defensive position.

Biofuel Market Developments: Regulation & Trade Dynamics

The biofuels sector experienced key regulatory and policy shifts in January :

• EU Anti-Dumping Duties: The European Commission finalized anti-dumping measures on biodiesel (HVO and FAME) imports from China, aiming to protect domestic producers. However, concerns remain over potential circumvention, particularly through alternative biofuels like SAF, which are currently exempt from these restrictions. The long-term market impact remains unclear.
• Indonesia’s Export Restrictions: The government tightened export controls on palm oil derivatives such as UCO and POME to secure domestic supply for its B40 biodiesel mandate, which increases blending requirements to 40% starting in late February. This move is expected to drive demand for alternative feedstocks in Europe, particularly as distributors may need to rely on existing inventories to meet contractual obligations.
• SAF Expansion in Asia: SK Energy became the first Korean refiner to export SAF to Europe, aligning with the EU’s new SAF mandate requiring a minimum 2% blending ratio.
• UAE’s National Biofuels Policy: The UAE launched its National Policy on Biofuels, targeting a 20% increase in biodiesel consumption by 2050 while aiming for a 75% reduction in diesel vehicle emissions.
• EWABA’s Sustainability Push: The European Waste-based & Advanced Biofuels Association (EWABA) called for stricter sustainability criteria for cover and intermediate crops used in biofuel production. The organization urged clearer guidelines on cultivation and certification processes, alongside measures to prevent soil degradation and ensure compliance across the supply chain.

February Outlook: A Delicate Balance

The Mediterranean market remains fragile, with freight rates likely to stay under pressure unless cargo volumes recover significantly. The persistent supply-demand imbalance has weakened owners’ negotiating positions, and without fresh inquiries, rates will remain vulnerable to further downside.

In Northwest Europe, stability is expected to persist unless there is a major disruption to trading volumes or weather-related delays. However, if cargo flows weaken, charterers will gain further leverage, keeping owners on the defensive.

On the biofuels front, regulatory adjustments and geopolitical shifts will continue to create uncertainty. The impact of Indonesia’s export restrictions, China’s anti-dumping duties, and SAF adoption mandates will be key focal points. While momentum toward lower-carbon fuels is undeniable, supply chain disruptions and inconsistent policies remain major hurdles.