Vegetable oil-based cutting fluids are a relatively recent development in large-scale metal machining. A metal machining factory in Wales that switched from mineral oil-based to vegetable oil-based cutting fluids has experienced the occurrence of a problematic floating sludge within the settling and holding tanks at the on-site effluent treatment plant. Physicochemical analyses have found that the sludge is composed of on average 33% water, 20% oleic acid, and 18% palmitic acid, originating from the vegetable oil-based cutting fluids used at the factory. A solvent separation step was devised and used successfully to separate water inherent within the sludge so as to study the division of the inorganic elements within the water and organic phases of the sludge. It was found that only a minor constituent of the sludge can be accounted for by Ca-bonded fatty acids. Formation of the sludge is suspected to be due to the biologically induced hydrolysis and oxidation of the oils from esters to the free fatty acids and subsequent creaming, forming a layer of stable floating sludge on the surface of the effluent storage tanks.