Argentina biofuel producers say price hikes fall short

Argentina's biofuel producers are scoffing at the government's 10pc wholesale price increases following a 10-month freeze, arguing that the long-awaited adjustment falls short of their production costs.

The biodiesel price rose to 48,533 pesos per ton ($627/t) from 44,121/t. The price for sugar cane and corn-based ethanol increased to Ps32.78 per liter from Ps29.8/l. The new prices take effect today.

The domestic price hikes are the first since President Alberto Fernandez came to power in December 2019. "Today we are starting to repair the fragile situation of the biofuel sector with a price update in the direction we want to take," energy secretary Dario Martinez said.

Producers maintain that the increase is out of step with galloping inflation and steady currency depreciation.

The new price is barely enough to cover the cost of soybean oil, which makes up 85pc of the final cost of biodiesel, said Juan Facciano, head of the Santa Fe Renewable Energy Chamber. Many of Argentina's biodiesel plants are located in central Santa Fe province, home to Rosario port.

Over the past 10 months, the soy oil price has jumped by 21pc, he said. In that period, the peso lost 23pc of its value.

"A 10pc increase does absolutely nothing to revive activity and will not allow any small biodiesel plant to restart production," he said.

Small and medium-sized biodiesel plants have been idle for at least 75 days because any production at the government-set prices would be at a loss.

Argentina's 27 small and medium-sized biodiesel plants, which have an average of 36,000 t/yr of installed capacity, are responsible for supplying domestic refiners to meet a 10pc blending mandate while the largest plants are focused on exports.

Without production, Argentina has not met its blending mandate since August, Facciano said.

Aripar, a 50,000 t/yr biodiesel plant in Buenos Aires province, is one of the plants that has stopped production. Aripar chief executive Carlos Paredes is evaluating whether to close altogether if the government fails to act soon.

Before the new increase, the government-set price was 38pc lower than it should have been considering feedstock increases and the devaluation, according to Paredes.

"This 10pc increase still leaves us in the same place as before," he said, estimating that the price should be around Ps62,000/l.

All Aripar workers have been suspended with partial pay since August and Paredes says he may fire 35 of his 50 employees by the end of October.

Renewable burden

Although ethanol plants have not stopped delivery to meet a 12pc gasoline blending mandate, that could soon change, warned Patrick Adam, executive director of the corn ethanol chamber.

"This isn't really an increase. The cost of production is still higher than the sale price," he said, adding that the corn price alone has climbed by 35pc this year.

If there are no further signals from the government, ethanol plants are likely to start shutting down production over the next few weeks, he said.

Biofuel sector leaders say the energy secretariat is influenced by oil companies that have long blamed blending mandates for their retail motor fuel price hikes, a politically sensitive prospect in a country mired in a deep recession made worse by the Covid-19 pandemic.

"Renewable energies are financing polluting energies," Adam said.

By Daniel Politi