Open Source Securities: The second phase of the domestic civil aviation SAF pilot program has been launched, and the UCO-SAF industry prosperity is expected to improve

According to the Zhitong Finance APP, Kaiyuan Securities has released a research report stating that the second phase of the SAF pilot program for civil aviation in China has officially started. From March 2025, four airports, including Beijing Daxing, will implement a 1% blending ratio for regular refueling. Coupled with the implementation of mandatory blending policies in the EU and the UK, the global demand for SAF is expected to accelerate. Companies with SAF and used cooking oil (UCO) production capabilities are likely to benefit, including JAHB (603822.SH), Haixin Energy-Tech (300072.SZ), Pengyao Environmental Protection (300664.SZ), Zhuoyue New Energy (688196.SH), Shanggao Environmental Energy (000803.SZ), and Langkun Environment (300829.SZ).

Key points from Kaiyuan Securities are as follows:

The second phase of the domestic civil aviation SAF pilot has started, and a consensus on regular blending refueling has been reached

According to the Global Aviation Energy Conservation and Emission Reduction public account, starting from March 19, 2025, all domestic flights departing from Beijing Daxing, Chengdu Shuangliu, Zhengzhou Xinzheng, and Ningbo Lishe airports will regularly refuel with a blended 1% SAF fuel, with expectations for a wide-ranging pilot program at provincial capital airports in the third phase starting in the third quarter of 2025. According to the Jinlian Chuang Energy public account, it was learned earlier in 2025 that the Civil Aviation Administration held a closed-door meeting on the second phase of the SAF pilot work. Although there are still differences in market feedback regarding the blending ratio, a consensus on regular blending refueling has been reached. The International Civil Aviation Organization requires member states to implement mandatory SAF blending policies starting in 2027. As a member of the International Civil Aviation Organization, China is expected to introduce relevant SAF blending policies at that time, thereby opening up domestic SAF demand. In other words, China's phased SAF refueling pilot tests also provide support for the subsequent implementation of SAF blending policies.

The EU and UK are gradually implementing mandatory blending policies, and SAF prices are expected to rise steadily

In 2025, the EU and the UK will officially implement a 2% SAF blending policy and plan to gradually increase the blending ratio, with the EU planning to reach 6% and 70% by 2030 and 2050, respectively; the UK plans to reach 10% by 2030 and 22% by 2040. The bank estimates that the demand for SAF in the EU and the UK will be around 1.6 million tons in 2025. Since 2025, SAF prices have continued to decline mainly due to the EU's assessment of SAF blending ratios on an annual basis, resulting in slow short-term demand growth. According to Longzhong Information data, on March 19, 2025, the FOB price of bio-jet fuel in Europe was $1,748 per ton, a decrease of 29.41% from $2,476 per ton in early April 2024. The EU's penalty rules are quite strict, with penalties for aviation fuel suppliers calculated as 2×[the annual average price difference between SAF or synthetic aviation fuel and conventional kerosene]×the quantity of aviation fuel that does not meet the minimum quota; penalties for aircraft operators are calculated as 2×the average annual price of aviation fuel×the number of years not filled. The bank expects that the EU and UK will steadily implement SAF blending policies, leading to a steady increase in SAF demand, which is expected to drive SAF prices up steadily Theoretically, SAF has strong profitability, and domestic companies with SAF and UCO production capabilities may benefit

According to EASA's estimated data, the cost of producing SAF using the HEFA process in Europe is estimated to be €1,770 per ton in 2023, while the average price of SAF is €2,768 per ton, resulting in a net profit of nearly €1,000 per ton. As of February 7, 2025, the net profit per ton of domestic SAF is approximately ¥714 per ton, with UCO costs accounting for 78% of the total cost of SAF; since May 2024, continuous SAF production facilities in China have shown profitability potential. However, there is a lack of orders for domestic SAF facilities, and there are few facilities capable of continuous production, leading to overall low profitability. As demand for SAF stabilizes and increases in Europe, the UK, and other regions, it may enhance the profitability of domestic SAF production companies. Additionally, China's UCO has strong carbon reduction properties, and as demand for its downstream SAF and biodiesel increases, while its own new production capacity is limited, future market conditions are expected to improve significantly. Therefore, the bank believes that domestic companies with SAF and UCO production capabilities are likely to benefit.

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