Viewpoint: Brazil gasoline producers weather the crisis

Brazil's independent gasoline producers are coming out of the economic slump induced by the Covid-19 crisis in better shape than importers, who struggle with dim import arbitrage opportunities and Petrobras' reassertion of its leading position in the Brazilian domestic market.

With the Covid-19 pandemic now translating into a prolonged transition period towards a more open and transparent downstream segment, market participants seem tempted to reassess their presence in Brazil's trading landscape in 2021.

Limited import opportunities for gasoline following the coronavirus crisis that started in March prompted trading companies and fuel retailers to reallocate their tanking space in Brazilian ports towards ethanol exports. This business gained traction during the second half of the year amid strong demand for industrial grade ethanol to produce hand sanitizer in Asia and Europe.

Importers of finished gasoline also faced steeper costs starting in August as Brazil oil regulator ANP upgraded the country's gasoline specification to align it with US and European standards for density, RVP and octane number.

Lower direct imports were offset by rising domestic output from state-controlled Petrobras and independent producers, leading to increased competition during the fourth quarter of 2020. Unabated by Petrobras' pricing policy, which disincentivized imports, independent blenders and refiners were able to regain market share starting in October as they were able to secure affordable naphtha and other blending components amid a persistant global gasoline supply glut. Refiners Refit and Riograndense, blender Copape and petrochemical conglomerate Braskem collectively increased their market share by 2.1 percentage points between September and October, topping out at 11.9pc.

Local independent suppliers benefited from a rebound in domestic demand after consumption fell 19pc during the second quarter comapred to a year earlier, to 7.5bn l (512,800 b/d). In October, gasoline sales were back up 2.1pc from last year's levels at 3.4 bn l (690,000 b/d) according to data from oil regulator ANP.

A protracted transition period

But this surge in independent producer activity remains dwarfed by Petrobras' prominence in Brazil's motor fuels market, which still accounts for close to 80pc of the country's sales to fuel retailers. Investors and local players started off 2019 confident that the government's divestment plan in Petrobras begun in 2016 and a more business-driven Petrobras management focused on upstream assets would finally shake off the company's dominant position on the downstream segment, following several failed initiatives from policymakers and regulators since the 1990s.

One of the landmark moves of this transition, the sale of the 333,000 b/d Landulpho Alves refinery (Rlam) to Abu Dhabi's state-owned investment fund, fell behind schedule in 2020 after the Covid-19 pandemic brought energy markets to a halt. Petrobras plans to finalise the sale of half its 2.2mn b/d domestic refining capacity by the first quarter of 2022, downstream director Anelise Lara said in early December. This would imply an extension to the end-2021 deadline agreed with anti-monopoly regulator Cade.

This delay could spell the end of motor fuels import operations for a growing number of disenchanted trading companies as the entry ticket into Brazil's downstream market becomes more expensive by the week while the prospect of a more open and transparent market is pushed back.

"Associates have been incurring losses for a long time, paying storage fees," Brazil's fuel importing consortium Abicom president Sergio Araujo told Argus in early December. "I fear other associates are also tired of losing money, and would not be surprised if there are other withdrawals at the beginning of next year."

By Amance Boutin