Falling ethanol prices, capacity causes 28 percent price increase in ethanol blending credits in one week; leading indicator that the worst is over for ethanol?

In Washington, the prospect of rapidly falling ethanol supplies has caused the price of ethanol blending credits, known as Renewable Information Numbers (RINs), to soar by 28 percent. Under EPA rules created to implement the Renewable Fuel Standard, fuel marketers must submit RINs that match the number of gallons of ethanol they are required to blend into gasoline.

Marketers may also blend more ethanol than required and sell RINs on the market, or blend less than their quota and purchase RINs to cover the shortfall. In recent weeks, the Digest has reported that numerous blenders have opted to blend less ethanol and buy credits, because of low gasoline prices.

Prices of RINs have escalated to as high as 17.5 cents per gallon. Reductions in the ethanol fuel supply from capacity reduction have contributed to tight ethanol stocks, resulting in added RIN buying pressure.

High prices in the RIN market are a leading indicator for potential increases in ethanol demand, and ultimately through forcing higher prices may stem the flow of ethanol capacity reduction or force increased imports from Brazil.

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