US' biofuel agreement sends EU biodiesel premiums soaring; ethanol unfazed

02.03.2017

European biodiesel premiums soared Tuesday following reports that a deal was struck to adjust the US' Renewable Fuel Standard in exchange for a waiver to allow year-round sales of gasoline blended with 15% ethanol.

European ethanol prices were little affected, despite rallying US ethanol and grains prices, and the T2 FOB Rotterdam price fell Eur2.50/cu m to Eur658.75/cu m.

The FAME 0 premium over ICE gasoil rallied by $22/mt to $431/mt while the RME premium rose $23/mt to $459/mt on the back of falling gasoil, to $489.25/mt from $497/mt.

The agreement, allegedly made by trade group the Renewable Fuels Association and White House special adviser Carl Icahn, would move point of obligation under the RFS while allowing a waiver to sell the more volatile E15 fuel during the currently-forbidden summer months.

Increasing ethanol demand through E15 would, in turn, increase biodiesel demand.

Icahn has been a vocal critic of the ethanol mandate and is a major owner of refiner CVR Energy. He has criticized the current point of obligation under the US' biofuels regulation, which requires refiners to comply with the law.

The deal would move the point of obligation to blenders, where renewable identification numbers are separated from their associated gallons of biofuel.

The announcement in the US caused soybean oil to rise by 1.93 cents/lb to 34.07 cents/lb, a 6% increase on the day, leaving the soybean oil-gasoil differential (BO-GO), an indicator for market strength up $50.30/mt to $261.86/mt.

This increase was partly fueled by falling gasoil value on the day, down $7.75/mt to $489.25/mt as the entire oil complex shifted lower ahead of the US inventory data.

The increase in the European biodiesel markets was seen further down the curve, with the paper market rising in line with the prompt.

The increasing soybean oil price resulting from these reports will impact the European market as it could increase the price of global vegetable oils, causing the cost of production in Europe to rise.

This would leave European biodiesel prices at a higher level, hence the move upwards on the forward curve.

The point of obligation has long been a complaint for many refiners, who didn't feel as though they should incorporate the price for blending. If a refiner did not have blending capabilities or did not blend enough renewable fuel into its fuels, it would have to buys Renewable Identification Numbers (RINs) on the open market.

EU ETHANOL SHAKES OFF RALLYING US MARKETS

Despite rising grains and ethanol futures prices in the US, following the bullish move for US ethanol, European ethanol was as yet unaffected, with tight physical fundamentals dominating prompt sentiment and European feedstocks further forward little changed day on day after a brief rally in the afternoon.

The rise in US feedstocks would likely feed into European grains markets at some point, said sources, but current fundamentals were such that there was little expectation of a meaningful effect on ethanol.

"Matif fell over the past two days, just back to where we were, well a bit below it," a source said. Ethanol prices at the moment are high enough to sustain crush margins near Eur200/mt, the source added, hence the current increases in feedstock price levels are unlikely to have a substantial effect on ethanol production in Europe.

The front-month CBOT corn contract was assessed by S&P Global Platts at 370.50 cents/bushel [$145.90/mt] at 1630, up 9.25 cents/bu on the day. The front-month CBOT wheat contract was at around 424.75 cents/bu [$156.10/mt], up 5.50 cents/bu on the day.

European grain prices increased less than those in the US markets. Euronext milling wheat was assessed at Eur171.75/mt [$182.35/mt] up Eur0.25 on the day, while Euronext maize was also assessed Eur0.25 higher at Eur170.25/mt [$180.75/mt].


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