With California pursuing an aggressive carbon cutting program in the road transport fuel sector under its LCFS system, the fight is on to secure enough low carbon fuel to feed the state’s surging demand.
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PRIMA’s California LCFS Index settled at $85.50 Tuesday March 14, 2017, down 50 cents from the previous trading session as trade interest waned from an active Monday. By the end of market close, the best bid and ask indications narrowed to an $85-86 range, with offers falling by $1 per ton from the previous day.
While LCFS prices have experienced bearish movements during the past several trading sessions, California biodiesel prices have risen 5 cents/gal from the previous week, settling at a discount to heating oil between 45-55 cents/gal indication. Offer-side interest showed less effort to chase bids, raising sell-side indications to 45 cents/gal. The product continues to remain well below biodiesel prices nationwide, bringing better margin compared with competing producers in other states.
White grease economics meanwhile remain favorable for domestic biodiesel producers searching for cheap alternatives to soybean oil, after white grease enjoyed spiking demand for use as a biodiesel feedstock late last year thanks to widening price discounts to rallying soybean oil. Current pricing for the animal fat-based feedstock shows an 8 cent discount to soybean oil, and meanwhile January production figures for white grease show a modest increase from the prior year. The availability of the product continues to provide added cushion for producers during the current economy. However, under CARB’s current LCFS program, only one pathway that contains white grease as an input of biodiesel production has been listed. The pathway, located in the US Midwest, produces biodiesel from a mixture of feedstocks including white grease and tallow, with CI evaluated to be around 35.57gCO2/mj.
Corn oil FOB ethanol during over the past week held at 28 cents per lb, falling slightly from the stronger trend of the past week. Thursday’s February USDA WASDE number showed a projected 50mn bushels of domestic corn consumption to be used as ethanol inputs, one of the only changes from February’s outlook. While in February in previous years local demand remained the biggest price driver for domestic corn oil, export demand to satisfy feedstock hungry overseas biofuels markets is playing an increasing role in informing price formation. A fresh 11,000t vessel carrying corn oil showed up fixed to sail from the US to Singapore in January, in addition to the 10,500t already fixed from Houston to ARA in northwest Europe last month.
In contrast to demand-supported corn oil prices, UCO prices in the California region has been hovering around at 27 cents/lb. In January over 7,000t of UCO has been booked shipped from the East Coast to Europe compared with the 3,000t shipped in the same period last year. Europe’s appetite for used cooking oil for supply into the continent’s “double counting” waste mandates has contributed to strong UCO prices at East Coast ports. Meanwhile Neste’s new storage and pre-treatment terminal in the Netherlands will add to the firm’s already massive demand for flows of corn oil and UCO into Europe from the second half of this year. Neste is hunting high and low for extra waste feedstock, producing 1,000m3 of renewable diesel from Finn’s Christmas ham fat at its Porvoo refinery in Finland.
On ethanol side, last week domestic ethanol production and stocks fell according to EIA data. The reported drop however failed to lend strength to domestic ethanol prices, as Q2 Chi Platts settled at $1.4925, down 0.75 cents from the previous trading session. In early March, D5/D6 RIN spreads have returned to early February ranges between 48 and 51 cents, the same range where the openness of Brazilian ethanol imports were being discussed. The widened spread has nearly caused a breakeven arbitrage opportunity for Q2 transfer at current LCFS prices, compared with a US ethanol with CI of 72 and Brazilian ethanol with CI of around 33. Recent inquiries of ethanol shipments from Brazil to the US west coast have been confirmed, however none of these ethanol fixtures have been discovered to be fixed for April transfer in that route.