A standoff between Petrobras and the ethanol sector over a proposed gasoline tax increase risks disrupting the state-controlled company's plans to increase fuel production after a demand slump sent utilization rates to fresh lows in April.
The ethanol industry says an increased Cide tax on gasoline to R 0.40/l ($0.07/USG) from R0.30/ l is necessary to support sales amid a significant increase in biofuel production in the Center-South region, where the sugarcane harvest began on 1 April. Petrobras strongly opposes the tax hike, arguing that additional taxation could have a negative impact on gasoline and LPG production and end-user prices.
Brazilian fuel retailers association Fecombustiveis recently joined Petrobras in defending the maintenance of Cide at R0.30/l.
The pleas of ethanol producers gained early support from Brazil's ministry of Agriculture, but enthusiasm has waned in recent days as the request faces increased opposition from other parts of the federal government. Brazilian president Jair Bolsonaro said at the start of the crisis in mid-March that there was no possibility of an increase in Cide to stabilize fuel prices.
According to Petrobras chief executive Roberto Castello Branco, increased taxation on gasoline would have a knock-on effect on the supply and price of LPG. Lower gasoline production would hurt LPG output — since most domestic LPG is produced at refineries in Brazil — and lead to a call for more imports, which would in turn increase prices for consumers.
Domestic LPG sales averaged around 239,000 b/d in March, an 8.6pc increase over February and up almost 12pc year-on-year, according to data from Brazilian hydrocarbons regulator ANP. A primary cooking fuel source for many Brazilians, demand for residential LPG has spiked mainly because of movement restrictions adopted by many Brazilian states.
Planned domestic output revival
A cost-induced drop in gasoline consumption could frustrate Petrobras' plans to revive domestic fuel production after virus-gutted demand pushed utilization rates to around 60pc in April from 74pc in March. In addition to LPG, Petrobras is also prioritizing bunker fuel production to capture robust international demand for low-sulphur marine fuel.
The company's revised downstream strategy also envisages the production of fuel products for export, while maintaining domestic output at levels necessary to curb imports.
In the domestic market, Petrobras has diversified its offerings to include auctions of diesel and gasoline. The nine offerings since the start of the year have allowed distributors to purchase fuel lots at prices below refinery gate prices used for contract and spot models. The auctions have also allowed Petrobras to protect its market share in states where trading companies have gained a foothold in recent years, such as Sao Paulo and Parana.
In the international marketplace, the company has sought to draw down domestic fuel stocks by exporting naphtha to the Asian market and cargoes of diesel and gasoline to European and North American destinations. Since the beginning of the week, Petrobras has placed options for the closure of at least two tankers with transatlantic options, the Sadah Silver and the Orwell, for loading of fuel products in Brazil.
