Viewpoint: Biodiesel market to find new balance in 2020
The Brazilian biodiesel market is expected to find a balance between offers and demand in 2020 after feedstock prices reached a historic high in 2019.
With the country's implementation of a B11 blend in September, some participants have started to build inventories to meet increasing demand for the biofuel. By law, fuel retailers are obligated to sell diesel with a minimum 11pc biodiesel, although the regulatory agency allows discretionary blends up to 15pc. Rising demand for the biofuel triggered wider production of blends above the mandate, even before the B12 arrival, further supporting prices in recent months.
Biodiesel production should reach 6.1bn l in 2019, according to biofuels association Aprobio, rising to 6.8bn l in 2020, amid the higher blend mandate and a stronger economic recovery in Brazil.
Biodiesel demand is benefiting from higher diesel sales, which in January through September 2019 rose by almost 4pc from the prior year period to 48.20bn l, according to oil regulator ANP. The national average price for November-December deliveries in the 69th biodiesel auction rose to R3.076/l, up by around 8pc from the September price of R2.857/l, when the blend hike was announced.
The Brazilian biodiesel market tracked rising vegetable oil prices in the region during the second half of 2019 as Brazilian and Argentinian producers attracted buying interest from Chinese buyers. China was seeking new sources for goods as trade tensions escalated between China and the US. Lower-than-normal soybean oil supplies in the intercrop season also supported prices.
In September through the first half of December soybean oil values increased by 12pc, from R3,200/t to R3,580/t, while beef tallow jumped almost 25pc, from R2,550/t to R3,200/t, both on a cif Sao Paulo basis.
In 2020 soybean oil will lose part of its share to alternate inputs for biodiesel production, such as beef tallow and palm oil, as producers try to diversify feedstock sources. Soybean oil currently accounts for 70pc of the input mix. Rising demand for beef tallow, the second most used feedstock, should stimulate imports from neighboring markets like Argentina and Uruguay.
Government officials are confident that B12 will be ready next March after the implementation of the 11pc mandate was delayed by about a month until June 2019. Biodiesel producers were pressuring the government to increase the blend mandate since May, but inconclusive tests made by car makers association Anfavea postponed the B11 implementation.
"The biggest obstacle — and we do not believe that it is the main issue — was the oxidation stability," Aprobio's director Julio Minelli said. "The oil regulator is studying the matter and we are confident that the B12 deadline will be met."
The biodiesel blend will increase by 1pc every year through 2023, when it will reach its maximum limit under the current law.
By Gabrielle Moreira
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