Biodiesel Demand, Profitability Sink
by Dan Piller (Des Moines Register) So much biodiesel has been made and sold this year that the federal mandate for use of the biofuel has largely been met, resulting in a sudden loss of demand for the product and the shutdown of at least one Iowa biodiesel refinery.
…The problem for biodiesel is the sudden drop in the value of Renewable Identification Numbers (RINs), which track biofuel use compliance for federal regulators.
Through late summer, the RINs sold for as much as $1.50 per gallon, adding to the revenues for biodiesel producers and signaling strong demand for their product.
But as usage neared the 1 billion-gallon mandate level in September, the value of RINs plunged to as low as 50 cents apiece, and with it went biodiesel demand and profitability.
… Many oil and pipeline companies buy RINs in the secondary market in lieu of actually purchasing the biodiesel itself.
…Biodiesel producers were hit first in 2007 by a doubling in the price of the soybean oil that was their original feedstock. They switched to cheaper animal fats and restaurant greases, only to encounter resistance from truckers who complained that the animal fat-based biodiesel gelled in Upper Midwest winters.
While trucker reluctance was overcome gradually, most biodiesel plants went into virtual shutdown in 2010 after the expiration of the $1-per-gallon tax credit wiped out demand.
…The industry restarted last year with the beginning of a mandate, 800 million gallons in 2011 and expanded to 1 billion gallons this year. In September the U.S. Environmental Protection Agency said the mandate would be enlarged to 1.28 billion gallons in 2013. READ MORE