Viewpoint: Brazil biodiesel sector looks outward

Brazil's launch of direct spot biodiesel sales in 2022 is prompting producers and fuel distributors to look at both imports and exports as viable alternatives for the next two years.

Plants that idled biodiesel capacity during the Covid-19-induced slump are seeking to export to the EU and Peru, while retailers are lobbying the government to open the market for cheaper imports from Argentina ahead of the planned import opening in 2023.

Exporting biodiesel would be a way for producers to increase revenue and strengthen their finances as they face a more competitive domestic market with the onset of the new direct spot sales model, which comes amid a weaker demand environment.

Direct spot sales among plants and distributors, by mutual accord, are expected to account for up to 20pc of market demand. Those sales could total about 1.46bn l (25,253 b/d) of biodiesel in 2022, taking into account the total volume of 7.32bn l sold at auction from January to November of this year, according to ANP data. The remaining 80pc next year would be sold through direct contracts.

In an unexpected December decision, the national energy policy council (CNPE) maintained the blending mandate at 10pc for all of 2022, a factor that is likely to keep more producers idle. This comes as the direct sales model will take effect next year, replacing the public auctions that ended in October. The blending mandate between March this year and February 2022 should have been 13pc, but soaring inflation in Brazil prompted the government to keep the blend below that level for most of that time and, more recently, for all of next year.

The biggest soybean crushers and non-vertically integrated plants are trying to obtain International Sustainability and Carbon Certification (ISCC) to sell biodiesel to the EU. Southern producer BSBios took advantage of a surplus in the domestic market created by a cut in the mandate to test the export market as it shipped a cargo of 4mn l (28,540/bl) to Belgium in November. The company expects to make monthly shipments to the EU and to other markets after expanding its plants.

BSBios had previously exported a small volume of biodiesel in 2015. In April 2020, JBS, the world's largest meat processor, also exported 3.6mn l of biodiesel to Europe amid a decline in domestic demand and a weaker Brazilian currency.

Other large groups with facilities in the southeast, center-west, and northeast are also seeking export certifications. This month, a company missed an opportunity to sell 3mn l to the EU because it was not ISCC certified, a source told Argus.

The cut in the biodiesel mandate will increase the supply of soybean oil in Brazil amid falling consumption. Soyoil sales are expected to drop by 4pc to 8.2mn t in 2021 and fall by 3pc to 7.95mn t next year, according to Brazil's Vegetable Oil Industries Association (Abiove).

The drop in domestic demand should also favor exports of vegetable oil, which are expected to rise by 3pc to 1.65mn t in 2022, with India as a promising new market, according to the producer's association.

Fuel retailers eager to import

While plants have been looking for new markets overseas, fuel distributors are scrambling to accelerate the entry of biodiesel imports, scheduled to begin in May 2023.

The distributors' strategy focuses on the port of Itaqui, in the state of Maranhao, to supply northeastern and northern regions. The few plants located in the region cannot keep up with local demand, while the main production centers of the southern and center-west regions are distant, incurring high logistics costs.

As these consumer centers are short on production, retailers are looking to import biodiesel from Argentina when the arbitrage allows. Exporting to Brazil is an attractive prospect for producers in neighboring Argentina, as lawmakers there halved the biodiesel blending mandate to 5pc through 2030. The Argentinian biodiesel industry is also struggling with a high rate of idled capacity, at 50pc, about the same as in Brazil.

While fuel retailers are negotiating with the Brazilian government to open the market for imports, distributors are already tracking the import parity for biodiesel coming out of the Argentinean port of Rosario on the south bank of the Parana river. The watchword is to have the structure in place, ready to import as soon as the Brazilian government authorizes imports and the arbitrage opens.

Importing Argentinean biodiesel into Brazil could be advantageous for Brazilian distributors, allowing them tap into the flow of vessels laden with clean fuels coming from the US Gulf coast and the EU headed to the Southern Cone. Instead of returning empty, the vessels on the backhaul to the US or EU could drop off loads of biodiesel in Brazil's northeast.

Brazil's membership within the Mercosur regional free trade bloc should also facilitate negotiations for importers.

By Alexandre Melo