COMMODITIES 2025: Brazil boosts biodiesel production, eyes market growth

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Brazil's biodiesel demand is poised for steady growth over the next six years, driven by increasing biodiesel blending mandates with diesel A, which is then processed into diesel B for retail. This growth aligns with a new schedule set for approval by the National Council for Energy Policy, or CNPE.

Biodiesel market overview in Brazil

According to S&P Global Commodity Insights forecast, domestic biodiesel demand is expected to reach 10.4 million mt by 2025. Starting with a 14% blending rate in early 2025, this rate will rise to 15% in March and increase by 1% annually, reaching 20% by 2030, as stipulated in the Fuels of the Future law. These changes are set to boost production, meet growing demand, and attract significant investments to the sector.

As reported by the National Agency of Petroleum, Natural Gas and Biofuels, or ANP, Brazil currently boasts 58 authorized biodiesel plants, with a total daily capacity of nearly 41,000 cu m. This capacity is expected to grow, with several plant expansions and new facilities on the horizon. By October 2024, Brazil produced approximately 7.6 million cu m of biodiesel, with top-producing states including Mato Grosso, Rio Grande do Sul, Paraná, and Goiás. Production for 2024 is projected to reach 9.1 million cu m, according to Commodity Insights.

Feedstock availability

Soybean oil remains the dominant feedstock for Brazil's biodiesel industry, accounting for more than 70% of the raw materials, according to ANP data for 2024. In a notable shift, Brazilian soybean oil spot prices moved from a discount to a premium over Chicago Board of Trade futures in June 2024. This marked the first premium since July 2022, and the trend has continued since then.

Commodity Insights data highlights that with soybean prices hitting a historical low, Brazil is currently enjoying a favorable crushing margin, showing significant improvement over last year's crop, spurred by both favorable market conditions and domestic demand. The soybean crop for the 2024-25 season has hit a record 175 million mt, a substantial increase from the 153 million mt harvested the previous year.

To meet the rising blending mandates, Commodity Insights forecasts that Brazil will need to expand its soybean crushing capacity by at least 15 million mt over the next six years. This will require the addition of 4.6 million hectares of planted area and the processing of 17 million mt of soybeans by 2030.

Pricing mechanisms

Biodiesel pricing in Brazil is primarily determined through a formula-based method for bimonthly contracts. This approach incorporates factors such as the FOB Paranaguá soybean oil prices, the Real/US dollar exchange rate, and a variable fee.

The Biodiesel DAP Paulínia price surged to its highest level since January on Oct. 23, jumping 30% from the same period in 2023, when the blending mandate was 12%. This upward trend continued, peaking at a new record of Real 6,115/cu m on Oct. 24. The last comparable peak occurred on Nov. 29, 2022, when the price reached Real 6,225/cu m with a 10% blending mandate, now increased to 14%.

As of Dec. 31, the biodiesel spot price for DAP Paulínia stood at Real 6,040/cu m, while the Platts-calculated biodiesel price -- based on the conversion of the FOB Paranaguá soybean oil assessment to biodiesel density and excluding additional fees -- was Real 5,275/cu m on Dec. 30.

Regulatory landscape

The Brazilian government has placed a strong emphasis on energy transition and climate change in recent years, driving substantial regulatory shifts in the biofuels sector. The recently sanctioned Fuels of the Future Law, signed on Oct. 8, introduced a comprehensive ten-year strategy aimed at decarbonizing the energy matrix. This law also set a new mandatory blending schedule for biodiesel and ethanol.

Under the new mandate, the blending percentage will increase to 15% in 2025, with a 1% annual rise until it reaches 20% by 2030. In addition, tax reforms are on the horizon, including hikes in PIS/Cofins and ICMS taxes, set to take effect in February.

Sector regulator ANP has also approved key regulatory updates, including the introduction of biodiesel blending in marine fuels and new diesel quality standards. These changes are expected to expand the use of biofuels across Brazil's transportation sector. The implementation of co-processing will further boost renewable content in diesel production, aiding in CO2 emission reductions.

The National Council for Energy Policies, or CNPE, has set volume targets for low-carbon feedstocks, such as used cooking oil and tallow, to promote more sustainable biofuel production. Additionally, the establishment of a regulated carbon market through the Brazilian Greenhouse Gas Emissions Trading System is expected to positively influence both biofuel pricing and usage.

Private sector investment is also gaining momentum. Petrobras has committed to investing $600 million in biodiesel and biomethane projects as part of its 2025-2029 business plan, signaling a promising future for Brazil's biofuels industry.