ASEAN Plantations - US biodiesel targets for 2014-17

■ EPA unveils final renewable fuel volumes requirements under RFS programme.

■ We estimate US biodiesel consumption could rise by 5-10% for 2016-17.

■ Positive for soybean oil prices and indirectly benefitting CPO prices. Maintain Neutral rating on the sector. AALI, FR and GENP remain our key picks.

Final renewable volume requirements under RFS programme
The US Environmental Protection Agency (EPA), has unveiled the final renewable fuel volumes requirements under the Renewable Fuel Standard (RFS) programme for the years 2014 to 2016, as well as final volume requirements for biomassbased diesel for 2014 to 2017. (see Fig 1)

EPA role in renewable fuel policy in US
The EPA is responsible for developing and implementing regulations to ensure that transportation fuel sold in the U.S. contains a minimum volume of renewable fuel under the RFS programme.

2014-15 volumes based on actual biofuel usage in the country
The EPA says it finalised 2014 and 2015 standards at levels that reflect the actual amount of domestic biofuel used in those years, and standards for 2016 (and 2017 for biodiesel) that represent significant growth over historical levels.

Final volumes are higher compared to proposed volumes in June
The final volume requirements for renewable fuels are higher than the volumes that EPA proposed in June, mandating that more than 18bn gallons of biofuels overall be blended into the fuel supply for 2016. However, this falls short of the 22.25bn gallons envisioned by the US Congress in 2007. Biodiesel qualifies under two categories in RFS.

Biodiesel falls under the Biomass-based Diesel category, which is a subset of the overall Advanced Biofuels category. The other important category for biodiesel is the advanced biofuels bucket since biodiesel is the most abundantly-available commercially produced advanced biofuel, as designated under EPA.

US biodiesel consumption could go up by 5-10% in 2016-17 
This is a positive development for CPO prices as the final renewable volumes obligations (RVOs) for biomass-based diesel and advanced biofuel category of 1.9bn and 3.6bn gallons for 2016 is 5-6% higher than proposed volumes in June. The final RVOs will require biodiesel usage in US to rise by 10% in 2016 and 5% in 2017.

Potential impact on global edible oil consumption
We estimate this could raise the US biodiesel demand by around 514k tonnes in 2016 to 5.74m tonnes, and by 302k tonnes in 2017 to 6.04m tonnes. The increase is not significant relative to global edible oil consumption of 200m tonnes in 2014. A more bullish scenario, that assumes all the advanced biofuel category is fulfilled by biodiesel, could boost usage by 1.3m tonnes in 2016 (or 0.7% of 2014’s total consumption).

Positive for CPO prices
This is positive for soybean oil prices, the key feedstock for US biodiesel production and was partly reflected in the 1% rise in soybean oil prices yesterday, with some spillover effect on CPO prices. (Read Report)

Source : CIMB Research

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