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CME will introduce ethanol RIN contracts by mid-May
By STEVE BINDER
Illinois Correspondent

CHICAGO, Ill. — Futures exchange operator CME Group, Inc. announced last week it will begin offering futures contracts for the federal system that tracks the production of biofuel, including ethanol.

The move comes amid recent price increases in Renewable Identification Numbers (RINs), certificates attached to each gallon of biofuel that refiners must have to show they are meeting the requirements of the federal Renewable Fuel Standard (RFS), first enacted in 2005.

“With the recent increase in volatility in RINs prices, we’ve seen strong interest from our customers and other market participants for cost-effective ways to manage their risk in this market,” said Gary Morsches, CME’s managing director for global energy. “Our new RINs futures contracts will be a strong complement to our existing suite of products and will allow our customers to take advantage of reduced capital requirements and margin efficiencies.”

Contracts will be available starting May 13 for the three main types of renewable fuels for which RINs are issued: D4 biodiesel, D5 advanced biofuel and D6 ethanol. They will be available on the New York Stock Exchange, as well as on the CME Globex electronic trading platform and over-the-counter CME ClearPort.

Since prices for the RINs have risen, particularly for the corn-based ethanol certificates, there has been growing interest from investors for the new contracts, said Damon Leavell, a CME spokesman in New York.

Just last month the RIN price for corn-based ethanol rose by more than 6 percent in a three-week period, to 75.5 cents. The RIN price for biodiesel and sugar cane-based ethanol made in Brazil was up by more than 5 percent during the same period, to about 82 cents.
The new contracts are tied in part to the RFS, which is overseen by the U.S. Environmental Protection Agency, and has come under attack by some lawmakers and Big Oil as what they say is an unnecessary government mandate and an intrusion into the free market system.

Updated in 2007, the RFS mandates refiners blend a certain amount of ethanol into the nation’s gas supply – all with the intent of decreasing America’s dependence on foreign oil. The amount of ethanol required steadily rises each year under the RFS. This year, 13.8 billion gallons of ethanol is required, 14.4 billion gallons in 2014 and 15 billion gallons in 2015.

Blenders can accumulate surplus RINs when they make more biofuel than required under the RFS; this year, the surplus is estimated at about 2.5 billion RINs, which can be traded in the secondary market.

As the RFS requirements increase each year, the demand to use more ethanol increases, but the amount of gasoline used by Americans continues to slide slightly. Without changes in the near future, such as a move to gas made with 15 percent ethanol (E85) versus the required 10 percent now, prices for RINs likely will remain volatile, according to a report issued last month by analysts with Citi Corp.

In addition to the CME Group, futures contracts also will be offered by Atlanta-based IntercontinentalExchange, Inc. (ICE), the company announced last month.
5/1/2013