U.S. ethanol credit prices drop on blending delay

NEW YORK, April 9 (Reuters) - U.S. ethanol credit prices have dropped on diminished expectations that the government will allow increased levels of the alternative fuel to be blended into regular gasoline this year.

Prices for the credits, known as Renewable Identification Numbers, or RINs, have fallen since late March.

On Thursday, 2009 RINs, which expire in 2011, were valued at 8.5 cents, down nearly 30 percent since March 27, according to New York-based Rinxchange, the only bourse on which the credits are currently traded.

Vintage 2008 RINs, which expire in 2010, were pegged at 4 cents, down about 47 percent.

RINs prices had surged in January after ethanol prices hit a premium of more than 40 cents above gasoline as a fleet of ethanol plants shut on financing difficulties and poor margins.

Since then RINs have fallen amid weak fuel demand and after Valero Energy Corp (VLO.N) bought seven ethanol plants from bankrupt ethanol producer VeraSun Energy Corp VSUQE.OB, which the oil refiner plans to run at capacity.

Prices of RINs dropped further after the Environmental Protection Agency said this month it will take another year of tests to see whether the higher blends will not harm car engines.

"It's going to take longer than most thought to even think about additional percentages of ethanol as an additive to gasoline," a RINS broker in an e-mail.

Ethanol producers have lobbied the government to increase the maximum blend of ethanol into gasoline that can be burned in normal cars to 15 percent from 10 percent.