By Zander Capozzola, Argus Media.
The premium for 2015 D3 cellulosic RINs to D5 advanced RINs surged to 40¢/RIN today, rising 20pc in the past two weeks despite two consecutive months of record-breaking production.
The D3/D5 spread was last seen at 33.25¢/RIN on 15 July when the market for D3 credits surfaced at either side of 106.5¢/RIN. Over that period the D5 RIN price has declined 8.75¢, or 12pc, while the D3 price fell less than 2pc, adding 6.75¢ to the D3/D5 spread.
The D5 price sets the theoretical floor for the D3 price, while the D5 price plus the 64¢ cellulosic waiver credit (CWC) sets the theoretical ceiling for a D3 credit since in the absence of a cellulosic RIN an obligated party must retire a D5 credit and purchase as CWC from the EPA. At today's prices this would equate to a floor of 64.5¢ and a ceiling of 129.5¢/RIN.
The market for 2015 vintage D3 RINs was bid at 99¢ against offers at 110¢/RIN for QAP-certified credits today, leaving the market just 24¢ shy of the theoretical ceiling price.
In June, generation of D3 cellulosic biofuel RINs reached an all-time high at over 12.4mn RINs, surging 33pc past the previous month's production of 9.3mn RINs, the previous record high. If this rate of production can be sustained through the remainder of the year, the industry will produce around 123.8mn RINs, surpassing the current proposed blend mandate of 106mn USG by nearly 17pc.
Fresh demand at the start of the quarter could be adding value as many large obligated parties pursue their quarterly compliance strategies, allowing D3 RINs to retain value relative to a weaker D5 RIN market even amid record-high production.