There are a myriad of things swirling around the US biodiesel market creating massive uncertainty never quite experienced even in this arguably maturing and evolving green fuels business. Although the HOBO spread remains cooperative, especially from a historical perspective it is precarious with some swings across the week and some volatility that likely reminded everyone how good things are, under the present HOBO circumstances. Perhaps more to the point the idea of how bad things would be if say we had a HOBO at “plus 40” like we did 18 months back is a very sobering reality, so praise the HOBO people, praise the HOBO. In short may the commodity gods or biodiesel saints keep him or her happy and send wine now.
So let’s talk RINs, as they have sat stoically in the 50-cent band for quite sometime now mostly as a product of the uncertainty, however I will peg the “floating RVO situation” as the main point of uncertainty there the complex has been on the move across the past couple of days. The situation based on the provisional RVO of 1.28 billion gallons for the D4 category looks, well ugly at the moment, let’s be honest. The D6 arguably the only thing holding it up with a touch of support perhaps from the D5 that has decreased across past months, but that support began to crack in recent days. Now that being said from a scale vantage point everything looks pretty bearish and as you look at the D6 numbers today they seem to be slipping due to the heavy figures steamrolling out of the peak gasoline and by default ethanol summer demand season. Now as I speak in terms of bear versus bull with regards to RINs I want to make a few points though on the overall S & D balance of mainly the D4 but also a bit on the D6.
Starting with the D6 a few things come to mind that are in play. In September and then again 30 days after the finalized 2014 RVO is released there will be some significant RIN retirement happenings around the D6 category for both 2013 and now 2014. The 30 days after 2014 RVO release is when the 2013 compliance must be “turned in” by obligated parties finally as well as RINs associated with exports for the year handed in by traders. This ‘can of RINs’, so to speak, has been kicked down the line along with the finalized RVO release, however these numbers will be significant based on ethanol exports last year. For 2014 there are some changes taking affect September 15th that tightens up RIN retirement timelines around imports and exports on a go forward basis that may also result in a wave of 2014 D6 RINs being retired in September now too.
Now holding on to this thought I will work my way into the D4 situation where a certain, large renewable diesel supplier, that has produced some large D4 RIN generation across the year may also need to retire significant RINs on gallons that did not end up coming into the US market. With this new change in the way their foreign generation of RINs and namely the timing of when they must reconcile what gallons did not end up being shipped to the US in the end, will leave them requiring those RINs generated to be retired. So this too should technically play out in September and potentially in a big way for the D4 S & D I am told by some market insiders. From there Diamond Green had a fire in early August and appears to be idle for September. Now Neste Singapore too has gone into turnarounds for much of September now it appears too and will be down for about 6 weeks. These two plants have on average generated approximately 26% of the D4 RINs every month YTD. Now sure Diamond Green will likely be up soon and Neste’s turnarounds will likely last as project 6 weeks but the overlap in this August through October timeframe is certainly going to result in less D4 RINs produced and when those two plants make up 26% it has the propensity to shake things up.
Now add a larger RVO to the above two scenarios and perhaps the bull quickly tramples the bear in this RIN market. In other news the EPA made another brilliant announcement today releasing their Late Night-esque version of a “Top Ten List” today suggesting that contrary to the November timeframe they are meant to set the 2015 RVO that they feel February is now the realistic timeframe of them getting around to it. No real surprises here I suppose and everyone in this market is so jaded with their preposterous adherence to timelines, that only really trade lawyers likely reacted with much of a pulse adding outlook reminders to file yet another lawsuit against this agency given their rather laissez-faire attitude toward this rather critical guidance that only effects the ENTIRE market their program is meant to foster growth in. Still for biodiesel this may not be such a bad thing givne this Argentine development whereby D4 RINs appear to be getting generated on these vessels carrying SME into US ports again across past months with a few more on the nearby horizon as well. So if this is the new reality for the US market and Argentine SME will now qualify for D4 RINs the EPA may very well want to take a few more months to get their arms around the ramifications of this as the 2015 RVO should be raised by another 900 million gallons just based on this alone!