Brazilian biodiesel trade moving toward open market with limited spot buying – S&P Global

Highlights

Brazil to become a potential biodiesel importer

Domestic economy would benefit from lower diesel cost: importers’ group

Santos — Brazilian fuel distributors will be able to buy 20% of their total demand for biodiesel in the spot market, while 80% of the volume supplied will need to be “social fuel” produced by small-scale farmers, allowing spot market purchases and imports for the first time, the Brazilian Ministry of Mines and Energy has said.

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According to a statement released Sept . 16 by the ministry’s Abastece Brasil (Supplying Brazil) commission, Brazilian biodiesel trading would switch to a partial open market from an auction market as of Jan. 1, 2022.

The parameters for the biodiesel supply contracts will need to be previously approved by the National Agency for Petroleum, Biofuel and Gas regulatory agency. According to Abastece Brasil, the parameters for biodiesel contracts are expected to be similar to anhydrous ethanol contracts.

Brazil has a mandatory 27% anhydrous level in ethanol-blended gasoline.

In the proposed model, there is no prohibition on importing biodiesel, a strong requirement from fuel distributors, who see an opportunity to source cheaper biodiesel from outside Brazil, and the National Association of Fuel Importers, or Abicom.

“The study’s conclusion that the current stage of maturity in the sector already allows the beginning of the deregulation process is a fundamental advance for the segment,” Abicom said in a statement. “Considering the difficulty for producers to meet demand, even though the study has medium-term proposals, Abicom reinforces the need to anticipate the allowing of imports.”

Abicom was referring to the recent drop in the mandatory blend to 10% from 12% for September and October, which was needed to guarantee the diesel supply in the country.

While the proposed model suggests an official beginning of this new trading model in January 2022, the “Abastece Brasil” commission emphasizes that it could be positive if the regulatory changes could be anticipated, as it could lower the cost of biodiesel-blend diesel to consumers.

Supply and Demand

Brazil in 2019 produced 5.9 billion liters of biodiesel, with soybean oil accounting for more than 70% of the feedstock. S&P Global Platts Analytics estimates that in 2020 biodiesel production will total 6.2 billion liters, up 5.51% on the year.

Traditionally, the auction-trading model allowed producers to keep tight inventories, producing just the volume to be delivered over the next two months.

Brazilian biodiesel consumption in 2020 is estimated by Platts Analytics to reach 6.20 billion liters, an increase of 5.7% on the year, despite the coronavirus outbreak, which hampered gasoline and ethanol consumption in the country. Most goods in Brazil reach main consumption hubs and ports by road, which kept diesel demand high despite the social isolation measures imposed in the country since mid-March.

While Brazil is not allowed to import soybean oil for fuel purposes, imports are allowed for food and industrial purposes.

Brazil in 2019 imported 47,800 mt of soybean oil, according to data from the Secretariat of Foreign Trade. January to August, volume totaled 22,070 mt and market participants estimate that nearly 60,000 mt could be imported in upcoming months to supply the short-stocked local market.

Platts assessed soybean oil FOB Paranagua port on Sept. 16 at $875.46/mt, the highest settlement since the assessment was launched on March 16.

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