Secondary biodiesel market expanding in Brazil

Brazilian fuel distributors are adjusting their biodiesel purchasing strategies to include more spot sales between terminals ahead of the opening of the market in January 2022.

Firms are gradually ramping up sales with other distributors amid increased uncertainty while adjusting trading strategies between the country's biodiesel auctions.

Prior to 2021, fuel retailers relied on spot transactions directly in their terminals, mostly to adjust biofuel stocks at the end of the bi-monthly auction periods that guided the industry's supply calendar.

Now retailers are seeking to boost revenue in a market that is already feeling the effects of a transition to an open market aimed at increasing competitiveness and reducing state-controlled Petrobras' overarching presence in the downstream market.

Brazil's biodiesel tender was taking place every two months on the company's digital platform Petronect where biodiesel producers and fuel retailers negotiated supply for a two-month period. The latest auction, which took place between 4-13 October, is set to be the last.

Brazil's national energy policy council CNPE changed the industry supply structure from public auctions to direct sales starting January 2022, with 80pc of market volume under bi-monthly contracts and the remaining 20pc in the spot market.

An Argus survey indicates that the volume of biodiesel traded between the four largest retail chains and their peers outside of the auction totaled 15mn l in September, a 50pc increase over August. The traded volume represents around 1pc of the 1.29bn l of biodiesel acquired in the last auction, according to data from oil regulator ANP.

The growth of this secondary market accelerated in the May-June market supply auction, when the CNPE reduced the mandatory blending mandate to 10pc from 13pc. The resulting mismatch in the schedule of some companies in the middle of a volatile demand recovery scenario brought spot market sales among retailers to the forefront.

Trading between retailers picked up in the week directly following the supply auction. This market becomes particularly active when biodiesel prices between the previous and the next auction are in backwardation, as distributors with a surplus look for potential buyers to draw down stocks at their bases before the turn of the month.

Terminal transfers have been the main basis for negotiations among retailers, particularly in the Paulinia and Araucaria hubs in Sao Paulo state — the most important terminals in the country.

Growth in biodiesel demand among small retailers has been concentrated mainly in Araucaria and in the northeast. Last week, offers in the northeast were scant because of the prospect of higher prices at the final auction held by ANP, which ended on 13 October.

Lower supplies led to higher prices mainly in Parana in the south of Brazil, according to the 8 October Argus assessment. According to Argus data, 945,000 l were sold for R5,650/m³ ($3.88/USG) in Parana, an increase of R5/m³, while in Paulinia the value dropped by R10/m³ to R5,840/m³.

By Alexandre Melo