Biodiesel RINs trading at highest level since 2013

20.10.2016

Current-year biodiesel Renewable Identification Numbers traded Wednesday morning for $1.09/RIN, the highest price for the RINs since August 2013, and were assessed at $1.0850.

Biodiesel RINs for 2016 compliance have been volatile as the biodiesel blender's tax credit is due to expire at the end of the year. The last time the tax credit was slated to expire was 2013.

The previous year in which the tax credit was on the chopping block, 2011, also saw biodiesel RINs spike, peaking at $1.9750/RIN on September 14, 2011. But the blender's tax credit is not the only factor on the minds of RINs traders.

The US is struggling to meet its advanced biofuel mandate in 2016. Most advanced biofuel RINs come from sugarcane-based ethanol imported from Brazil. But Brazil is exporting less ethanol this year as the South American country is finding itself short.

Sugar prices have risen sharply over the year, prompting sugarcane producers to divert more of the crush to sugar production and away from ethanol. That has left less ethanol available to sell overseas.

Obligated parties are required to use 1.71 billion gallons of advanced biofuels in 2016. In 2017, the Environmental Protection Agency has proposed a 2 billion-gallon renewable volume obligation.

From January to August of this year, the US has imported only 31.74 million gallons from Brazil, according to US Census Bureau data.

To cover the shortage, obligated parties can use biodiesel RINs. Biodiesel RINs, because of their lifecycle greenhouse gas reduction, can be used to comply with the advanced biofuel and conventional ethanol mandates.

The volatility in biodiesel RINs has carried over into the other RINs markets.

Scott Irwin, the chair of UI Urbana-Champaign's agricultural marketing department, says biodiesel RINs are the driving force behind market prices. "The RINs market is highly attuned to the marginal gallon," Irwin said in a recent interview.

The ratio between the ethanol and biodiesel RINs prices shows which biofuel is the marginal gallon for complying with the US Renewable Fuel Standard. Specifically, the ratio looks at which RIN is used to satisfy blending volumes above the 10% blend wall, a 10% limit on ethanol blending driven by infrastructure and policy constraints.

As biodiesel RINs can be used to comply with the ethanol and advanced biofuels mandates, their flexibility causes them to drive the price more than ethanol RINs when then conventional ethanol blending mandate is above the blend wall. Thus, ethanol RINs track the movements in biodiesel. Over the summer accusations of fraud were leveled against the RINs market. Billionaire investor Carl Icahn said in August that the RINs market was being fraudulently manipulated.

But Irwin sees the RINs market following normal fundamentals, especially for a year when the biodiesel blender's tax credit is due to expire.


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