U.S. Buyers Scoop Up Brazilian Ethanol Amid RIN Revival
Oil traders are rushing to import ethanol from Brazil for the first time this year after U.S. regulators moved to increase use of advanced biofuel, opening a wide spread in the niche biofuel credits market.
The premium for Renewable Identification Number, or RIN, credits tied to "advanced" biofuels - such as Brazil's sugar-based supply - versus corn-based ethanol RINs, soared to its highest in over two years in the two weeks since the Environmental Protection Agency proposed higher-than-expected targets for use of fuels made from vegetable oil and plant waste.
The reopening trade opportunity may help revive margins for big Brazilian producers such as Louis Dreyfus Commodities' Biosev and Copersucar, which are struggling with low cane prices.
It also represents more competition for domestic ethanol makers like Archer Daniels Midland Co and Poet LLC, which are already up in arms over reductions in government-mandated ethanol use targets and suffering from low prices due to swollen domestic inventories.
On May 29, the EPA issued long-awaited Renewable Fuel Standard (RFS) rules on the volume of ethanol and other biofuels that must be blended into the nation's fuel supply. RINs, which can be traded over-the-counter, are used to demonstrate compliance with the program.
Brazil's ethanol is made from sugarcane and qualifies for the advanced fuel credit because it more drastically cuts greenhouse gas emissions than its corn-based counterpart. Prices of advanced fuel RINs, known as D5, have held strong because the EPA proposed a bigger-than-expected mandate.