California LCFS credits continued their record breaking run, trading twice on Friday at $85 and $87, both times for Q4 delivery. In total, almost 6,500t of credits have changed hands this week. The deals left the market best bid at $86 against offers of between $87-$90. PRIMA’s LCFS Index finished Friday at $87, bringing the week’s average mid-market value to $83.80, up $3.75 WoW. October’s month to date average for LCFS credits sits at $80.38.
Market participants are linking the rally to pre-emption of possible higher prices next year as higher CI cutting targets kick in against a likely weaker backdrop for low-CI biofuel imports. CARB’s proposal of a $200 credit transfer price cap has fuelled bullishness, although the proposal still lacks any detail over its rationale or mechanics. The cap will only become relevant when a new credit clearance market starts up in the new compliance year allowing obligated parties to buy credits to make up any compliance shortfall during a two month June-July window.
The fate of federal biodiesel tax credits remains another unknown quantity with the potential to shift California low-CI fuel fundamentals. US biodiesel producers association NBB is at loggerheads with advanced biofuel producers’ association ABFA over its support for a shift from a blenders’ to a producers’ credit which would threaten imports of foreign-produced biodiesel and renewable diesel. Some participants meanwhile see next year’s tougher CI pathways leaving California with an LCFS compliance shortfall as much Midwest corn ethanol looks likely to lose its benefit to California fuel suppliers looking to cut their portfolio’s CI.