D6 ethanol RINs up sharply, peaking Feb. 21 at more than 40 cents

By Holly Jessen | February 22, 2013

Renewable identification numbers (RINs) for renewable fuels, such as corn ethanol, are up significantly. The RINs, which have traditionally gone for about 2 cents a gallon starting increasing in price in July and landed at 42 cents for 2012 RINs and 46 cents for 2013 RINs after rising about a dime on Feb. 21.

“They’re jumping,” said Brian Milne, energy editor and product manager for Schneider Electric, a global energy management company that tracks the prices of RINs trading on the spot market, among other things.

Due to the two-year expiration date on RINs and the option to rollover 20 percent of RINs, newer RINs are more attractive to buyers, Milne told Ethanol Producer Magazine. This translates to a few cent premium for 2013 RINs above 2012 RINs.

The climb of 2012 RINs prices started in July and maintained a fairly steady rate at about 4 cents through December, he said. There was a big uptick in prices in January, putting the price at about 10 cents in mid-January and at 23 cents by the end of January. The big increase in price was on Feb. 21, went it up 10.5 cents to 42 cents. That’s 40 cents higher than the D5 RIN of one year ago.

2013 RINs started out the year at 7 cents, he said. By Feb. 20 they were trading at 33 cents and one day later the price went up 11.5 cents in one day, landing at 46 cents.

RINs are generated as ethanol is produced. The RIN can be then separated from the physical gallon and traded on the spot market. The increase in RIN prices is a benefit to ethanol producers, especially in a time when margins are tight, and could prompt increased production, Milne said. Obligated parties, including refiners, blenders or importers,that must document compliance with offsetting a percentage of its petroleum-based product production or imports. In the past, these companies did this by purchasing physical gallons for blending. Now, with concerns about hitting the blend wall and reduced ethanol production (and therefore reduced RIN generation) due to the drought, more RINs are being traded, which pushed the price up. Traders are also jumping into the mix. “We do see a bunch of brokers out there that are just selling RINs like crazy,” he said, adding that physical gallons aren’t actually being traded as much on the spot market, compared to RINs.

The 10 plus cent rally on Feb. 21 came with heavy selling in oil futures on the New York Mercantile Exchange, due lower economic growth expectations and other factors, Milne added. He also pointed to the fact that the Federal Reserve Board released the minutes of a committee meeting held in January, which included comments from some members about easing stimulus efforts earlier than expected. “That triggered heavy selling on the idea that economic growth would be slower than previously estimated,” he told EPM. “Slower economic growth typically translates into lower fuel demand. So, this line of thinking would suggest the blend wall could be reached quicker on less gasoline demand.”

Considering the blend wall, gasoline demand likely trending lower and yearly increasing renewable fuel standard targets there is concern in the marketplace. In other words, if obligated parties continue to have anxiety about meeting their obligations, there will continue to be demand for RINs, keeping prices higher. Although it’s quite early in the year to predict, Milne suspects that the trend will continue.  “The way I am looking at it RIN pries are going to stay pretty strong going forward, at least through the summer months,” he said, adding that obligated parties may move to maximize their 20 percent allowed carryover of 2013 RINs as they think ahead to 2014.

The story of biodiesel RINs, which are currently down, is a cautionary tale, however. A few years ago, before biodiesel RIN fraud was discovered, biodiesel RINs shot up to as high as $2. The concern at the time was whether there would be sufficient gallons to meet the RFS requirement. Then, U.S. EPA data came out, showing there would likely be enough RINs. “You saw that RIN value just drop off from that $2 number to $1 in the coming weeks,” he said.

The increase in ethanol RIN prices wasn’t totally unexpected. A report that came out at the end of 2011 suggested that RIN prices could go up due to the blend wall.