The US ethanol industry sounded elated last week when the Trump administration unveiled longsought reforms to shore up biofuel demand, but the reaction in the markets has been less enthusiastic.
The price of compliance credits used in ethanol markets has fallen since Friday’s announcement by the Environmental Protection Agency, reflecting questions about the details and doubts it could drive greater sales, analysts said.
Most petrol sold in the US contains about 10 per cent ethanol. The commodity is of huge economic importance in Midwestern US states, where more than a third of the corn crop is sold to ethanol plants. These states, in turn, are crucial to Donald Trump’s re-election prospects in 2020.
Mr Trump’s EPA on Friday announced a plan to push ethanol demand to 15bn gallons a year — the level required by a congressional mandate — in 2020 after previously punching holes in the mandate by giving exemptions to dozens of oil refiners.
If successful, the plan would soften the impact of the exemptions on ethanol demand, pushing up the price of credits that oil refiners purchase to meet blending requirements. The credits are formally known as Renewable Identification Numbers, or Rins.
But after Friday’s announcement, the Rin credits “have been falling off a cliff ”, said Denton Cinquegrana of Opis, a fuel price information service.
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Opis reported the average price of ethanol Rins was 20 cents a gallon on Monday, down 16 per cent from Thursday and close to the average price of 2019. The drop reflected “disappointment” in the proposal, said Bill Lapp of Advanced Economic Solutions, a consultancy.
The price of ethanol swaps was $1.485 a gallon in Chicago on Monday, down 2.3 per cent from Thursday. Corn futures also settled at $3.87 a bushel, slightly lower than Thursday.
The EPA this week plans to formally propose the expanded biofuel requirements, according to an agency official. In its announcement last week, the EPA said that it would “seek comment on actions to ensure that more than 15bn gallons of conventional ethanol be blended into the nation’s fuel supply beginning in 2020”.
