KaiYuan Securities: Overseas SAF demand rebounds, UCO-HVO/SAF prices rise in sync

According to the Zhitong Finance APP, Kaiyuan Securities released a research report stating that driven by the rising demand for overseas HVO/SAF, there has been active inquiry for raw material UCO at Chinese ports recently, leading to an increase in UCO prices. In the future, as the European Union implements the 2% SAF blending policy by 2025, the demand for SAF is expected to grow. Coupled with the current higher European HVO prices compared to SAF, there is still room for SAF prices to rise. The increase in SAF demand is likely to drive up UCO prices, thereby achieving an upward trend in the entire UCO-HVO/SAF industrial chain.

According to IATA, Europe is expected to purchase 1 million tons of SAF by 2025, with an estimated cost of about $1.2 billion. However, to avoid fines imposed by the EU for non-compliance with SAF sales standards, producers or suppliers are expected to charge airlines an additional total of about $1.7 billion in compliance fees, doubling the cost of SAF purchased by European airlines. Based on this, due to China's advantages of lower prices and abundant supply of UCO raw materials, China's SAF production costs are relatively low, which is expected to effectively address the EU's SAF supply shortage issue and potentially gain a significant market share in the EU due to cost advantages.

Key Points from Kaiyuan Securities:

Rising overseas HVO/SAF prices lead to an increase in China's UCO prices

Regarding HVO/SAF, according to data from Longzhong Information, as of June 11, 2025, the FOB prices for the four types of hydrogenated HVO and SAF in Europe were $2,002 and $1,949 per ton, respectively, representing increases of +13.97% and +11.60% from the lowest points since the second quarter of 2025. According to Argus on May 29, the strong seasonal demand in Europe before the summer flight season has driven the increase in SAF demand, with high-quality HVO prices rising even more.

Regarding raw material UCO, according to Longzhong Information, as of June 12, the prices for waste cooking oil and leftover oil in East China were 6,250 and 6,650 yuan per ton, respectively, representing increases of +3.31% and +2.31% from the lowest points since the second quarter of 2025.

Driven by the rising demand for overseas HVO/SAF, there has been active inquiry for raw material UCO at Chinese ports recently, leading to an increase in UCO prices. In the future, as the European Union implements the 2% SAF blending policy by 2025, the demand for SAF is expected to grow. Coupled with the current higher European HVO prices compared to SAF, there is still room for SAF prices to rise. The increase in SAF demand is likely to drive up UCO prices, thereby achieving an upward trend in the entire UCO-HVO/SAF industrial chain.

SAF: The EU gradually implements the 2% SAF blending policy, highlighting China's cost advantages in SAF products

To achieve the 2% SAF blending policy, the EU has gradually introduced relevant measures. According to reports from Advanced Biofuels USA and Reuters, some European airlines have begun to charge an "environmental surcharge" or SAF surcharge of 6-20 euros to pass on the cost increases associated with blending SAF; on June 11, the EU proposed to subsidize airlines for purchasing more than 200 million liters of sustainable aviation fuel (about 160,000 tons). However, these measures are still insufficient to offset the cost increases associated with using SAF in Europe, primarily due to the high compliance costs for using SAF in Europe According to IATA, Europe is expected to purchase 1 million tons of SAF by 2025, with an estimated cost of approximately $1.2 billion. However, to avoid fines imposed by the EU for non-compliance with SAF sales standards, producers or suppliers are expected to charge airlines an additional total of about $1.7 billion in compliance fees, effectively doubling the cost of SAF for European airlines. On this basis, due to China's advantages in lower prices and abundant supply of UCO raw materials, China's SAF production costs are relatively low, which is expected to effectively address the EU's SAF supply shortage and potentially gain a significant market share in the EU due to cost advantages.

Beneficiaries of SAF: Jiaao Environmental Protection (603822.SH), Haineng Technology (300072.SZ), LYZY (688196.SH), and Pengyao Environmental Protection (300664.SZ), among others.

UCO: Future SAF demand may grow steadily, potentially driving demand for UCO

The recovery of terminal demand in the EU has driven SAF factories to continuously and actively procure raw materials, leading to an increase in domestic UCO of various specifications. Domestic UCO (hydrogenated) trading is the most active, especially with high-quality UCO in high demand. The procurement level of hydrogenated vegetable oil (HVO) and SAF factories both domestically and internationally continues to rise, affecting the price of general UCO, which has also increased. In fact, since 2025, the demand for UCO in China has shown an upward trend. On one hand, China's UCO has strong carbon reduction properties, and as downstream demand for SAF and biodiesel increases, its own new production capacity is limited, leading to an initial increase in prosperity.

On the other hand, due to Indonesia's efforts to develop its domestic biodiesel industry, Indonesia will restrict UCO exports starting January 2025. Therefore, despite the impact of geopolitical trade conflicts, the demand for China's UCO internationally continues to rise. According to Longzhong Information data, from January to April 2025, UCO exports reached 807,200 tons, a year-on-year increase of 5.65%. Thus, with the continuous growth of future SAF demand, the prosperity of raw material UCO is expected to rise first.

Beneficiaries of UCO: Shangaohuan Energy (000803.SZ), Langkun Environment (301305.SZ), among others.

Risk Warning

Policy advancement may fall short of expectations, raw material prices may rise sharply, and technological progress may not meet expectations, etc