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Biodiesel US

US biodiesel producers battle imports for share of strong second half

US biodiesel producers look set for a strong finish to 2015 after first half output jumped nearly 7% YoY, hitting 594mn gal, with June production up 5% MoM to hit 122mn gal. But surging imports of biodiesel and renewable diesel are squeezing the US industry’s room to expand against the proposed 2015 RFS2 mandated volumes.

US output typically peaks in the second half as producers position themselves to take advantage of the annual blenders’ credit extension, which over the past several years has taken until near year-end to win approval. Unadjusted first half production levels plus rates of biomass based diesel and renewable diesel imports put the industry on track for RIN generation of 2.4bn once respective multipliers are included, leaving the industry with just shy of 400mn gal of breathing space against the 2.9bn gal advanced biofuel requirement for 2015. In 2014 however, second half output climbed by 28% relative to the first half, with accompanying surges in the rate of imports. A similar sized second half production gain this year would put the US industry on track for second half output of 760mn gal, which would bring full 2015 production to 1.354mn gal and over 2bn gal including the biomass-based diesel RIN multiplier.

Surging biodiesel imports this year are on track to supply another 228mn gal if first half levels are maintained, although again last year second half imports were more than three times as large as those in the first half as blenders rushed to take advantage of the $1/gal Federal “blenders’” credit. First half imports of renewable diesel by reporting exporters meanwhile hit 79mn gal this year. If the import trade follows last year’s 17% second half rise, overseas producers would be set to ship 171mn gal of renewable diesel to the US, generating 1.7 times as many RINs.

The EPA’s May proposal pegs this year’s “advanced gap” at 244mn gal. The industry will receive some additional impetus from EPA’s May publication of 2016 provisional mandates outlining a 440mn gal gap between the 3.4bn gal advanced RIN requirement proposed and the combined 2.96bn gal mandate allotted to the biomass-based diesel and cellulosic RIN categories.

US producers are already bracing to compete with EPA-registered overseas exporters of renewable diesel, biodiesel and sugar cane ethanol for their share of an expanding market. Some lobbying efforts are aiming to persuade congress to limit the $1/gal blenders’ credit to US producers, a move which Darling Ingredients said on Monday should include a carve out for Canada and Mexico to avoid litigation at the World Trade Organisation. Such a move would give a major lift to D4 RIN prices as imported biofuels suffered a $1/gal price disadvantage.

White grease and canola oil were the two fastest growing inputs to US biodiesel production in the first half of this year, with both categories registering 22% YoY growth in consumption. Soybean oil consumption matched the overall rise in US biodiesel output at 7% growth to 2.3bn lbs, an increase only marginally outstripped by a 9% rise in tallow inputs. Corn oil consumption grew just 3% to 448mn lbs.

California’s state LCFS carbon intensity reduction program will also help producers of low carbon pathway waste biodiesel find offtake in the state after credit prices surged more than doubled from early July levels around $30/t to current levels in the mid-$60s/t.

MS – 01/09/2015


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