US biodiesel supply looks thin moving into Q4 and beyond: sources


The US could have trouble meeting its biodiesel blending mandate as imports from Argentina and Indonesia have been cut off by duties, sources have said.

"Without Argentina this year or early next year there's going to be a shortage in the market," said one source.

Imports from Argentina and Indonesia accounted by a large chunk of the biodiesel market in the first half of 2017. But the National Biodiesel Board, the largest biodiesel industry group in the US, pushed the US Department of Commerce to levy antidumping duties on the imports, saying the countries unfairly subsidized their product and hurt US producers.

Commerce in August said importers will be required to pay cash deposits in the range of 50.29%-64.17% for biodiesel from Argentina and 41.06%-68.28% for biodiesel from Indonesia.

US plants had to step away from production while foreign product moved into the market as they couldn't compete with the cheaper biodiesel.

"The International Trade Commission in its preliminary determination cited EIA statistics showing that the industry?s capacity utilization was below 70% throughout the 2014-2016 period, despite a 58 percent increase in demand during that period," said Rosemarie Calabro Tully, spokeswoman for the National Biodiesel Board.

"The hope and belief is that trade remedies that level the playing field will strengthen market conditions and result in greater production, including by those who have been sitting on the sidelines for the last couple years."

While the NBB praised the decision, some market participants eyed it with concern.

"Plants in Argentina without any subsidies are 20 times bigger than some US plants," said a second source. "They can crush and ship to us and it costs 10 cents."

He went on to say that domestic producers would still face expensive logistics and feedstocks that could keep them uncompetitive, even without competition from abroad.

"With antidumping duties you have higher prices for feedstock because all the soybean oil people know there's no more foreign competition. None of these domestic producers are being helped by duties, they're just having feedstock prices raised."

Shortly after the duties were announced soybean oil surged to a six-month high.

But the first source said the lack of competition would help domestic producers gain market share, but it might not be fast enough to cover demand.

"We can expand production next year and the year after but no one really adds capital without the tax credit. We need RINs to go up in value and tax credit back for people to put capital in plants.

The US biodiesel industry has faced poor blending economics for much of 2017 as the $1/gal tax credit typically available to the market expired at the beginning of the year and is yet to be reinstated.

Renewable Identification Numbers are a crucial part of the biodiesel balance sheet for companies.

The US Environmental Protection Agency issues RINs for every gallon of biofuel produced or imported in the US. Those RINs are then separated from their physical biofuel when blended and can be turned into the EPA for compliance or sold in the open market.

Due to biodiesel's higher energy content than ethanol, obligated parties need 3 billion biodiesel (D4) RINs. But biodiesel is also used to comply with the advanced biofuel mandate, which requires an additional 949 million RINs.

Through July, imported biodiesel has accounted for over 20% of biodiesel RIN generation, according to EPA data. Without the consistent supply of biodiesel from abroad, US market participants are going to have to find a way to quickly boost domestic supply, and for domestic plants that will depend on economics.

And while some some plants may have been furloughed while imports were high, sources said most US plants are still running. That leaves some scratching their heads for a source of biodiesel to meet the federal requirement.

"There's not a whole lot of idle production," said the first source.


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