Brazil biodiesel blending hike to curb diesel imports

The flow of foreign diesel into Brazil is likely to slow starting 1 April, when the percentage of biodiesel blended with its petroleum-based counterpart increases from 10pc to 12pc.

Brazil's national energy policy council CNPE approved the increase recently and set the blending schedule, with biodiesel content to grow to 13pc in April 2024, 14pc in 2025 and 15pc in 2026.

Brazil's mines and energy ministry MME estimates that the two percentage point blending increase starting next month will reduce demand for foreign diesel by around 1bn l (17,000 b/d) in 2023, or a monthly decline of about 110mn l for the rest of this year. In 2022, diesel imports into Brazil averaged 1.33bn l/month (36,440 b/d), according to trade ministry data.

The biodiesel sector mostly celebrated the CNPE decision, but fuel importers are cautiously assessing the impacts on business dynamics and foreign product flows.

Since the beginning of the year, local importers have approached foreign diesel purchases with caution and limited exposure with sporadic deals. Brazilian buyers remain wary of the government's approach to the country's downstream segment and continue to push for clear guidelines on the status of Petrobras' pricing policy.

Petrobras chief executive Jean Paul Prates has said that the import price parity principle (PPI), which in theory guided the company's market-based pricing policy since 2016, cannot be a "dogma."

"My job is to defend the company and compete for every cubic meter," he said at his first press conference as company president in early March.

Variables on the horizon

The changing demand scenario runs parallel to an expansion in the volume of Russian diesel flowing into Brazil's major ports, a trend that has attracted a growing number of distributors drawn to more competitive prices.

Russian diesel accounted for 14pc of the total imports in March, when 1bn l landed in Brazil. In January volumes from Russia were practically non-existant.

Offers of ex-port land terminal diesel originating in Russia are often quoted at prices below the refinery gate prices listed by Petrobras, sometimes with three-digit discounts in relation to domestic wholesale prices. Diesel from the UAE and Saudi Arabia also tends to reach cheaper prices for the Brazilian market compared with product imported from the US.

In the short term, the competitiveness of Russian diesel in Brazil can sustain imports, as small and medium-sized distributors are increasing monthly volumes imported from the country.

Brazil still requires imports of S10 diesel to bridge a supply gap caused by insufficient domestic production capacity. Local refineries produce surplus volumes of S500 diesel that the domestic market, in the medium term, can no longer absorb.

In a recent interview with Argus, Josue Mateus Bohn, the commercial director of independent refiner Acelen, said he does not see the S500 surplus lasting much longer. Some refiners, including Acelen, will continue with S500 production, but they will either build another diesel hydrotreatment unit (HDT) to transform S500 into S10, or export S500 and import S10 diesel above current demand.

By Gabrielle Moreira