Gasoline imports flow into Brazil’s South-Southeast amid open window, market still hesitant

An ongoing open arbitrage window has created the opportunity for a higher inflow of gasoline imports to Brazil's South-Southeast region, allowing market participants to build stocks ahead of the busiest season of the year, distributors and importers told Platts.

While some have decided to take the risk of buying import cargoes in an already long market, others have been more cautious amid speculations of a Petrobras price cut.

"With the current arbitrage, it is possible to sell at a good discount against Petrobras and still make a margin," an importer said. "Now that Refit has left the market, the opportunity is even bigger."

The South-Southeast ports of Rio de Janeiro, Santos and Paranagua led the country's imported gasoline and naphtha destinations this September, especially driven by naphtha imports from private refiner Refit to Rio. However, as Brazilian oil and gas regulator ANP shut down Refit Sept. 26 after an inspection, Petrobras, local distributors and importers stepped up to supply the private refiner's market share in the Center-South region where needed.

The Brazilian import arbitrage window has been open for the past 35 days, according to an Oct. 6 report by the Brazilian Association of Fuel Importers, or Abicom. Domestic volumes currently stand at a premium of Real 199.20/cu m against import prices in the southeastern trading hub of Paulinia, and a premium of Real 200.70/cu m in the southern hub of Araucaria, it said.

Platts, part of S&P Global Commodity Insights, latest assessment for the gasoline import parity on Oct. 3 was Real 2,417.47/cu m in Santos and Real 2,408.35/cu m in Paranagua. Prices at the ports have been in a downtrend since this January, when they had peaked at Real 3,323.36/cu m in Santos and Real 3,334.05/cu m in Paranagua.

Some participants say Refit's alleged irregularities, as well as the history of now-shut companies Copape and Aster, have created a negative impression of import volumes in the market. While major distributors report they don't face many challenges selling that product, smaller participants report difficulties.

"I have risked bringing import volumes to the South and had difficulties selling them. Everyone separates import volumes from national volumes in the tanks," a regional trader said. "In the Southeast, imports are more accepted, but the region has big issues with tax fraud, so it is hard to compete there."

Consistent import supply

Platts heard spot offers in Santos and Paranagua Oct. 3 at discounts of Real 200/cu m against Petrobras' EXA Paulinia and EXA Araucaria references, respectively, on an FCA basis. That is the product already brought into the domestic market and available at the tank.

For at least the past 20 days, Platts has heard spot gasoline offers in Santos and Parangua every week. This is an otherwise long market, dominated by domestic Petrobras production, along with the significant supply that Refit was bringing to the table.

As contract and import volumes stand competitively against Petrobras in the country's main fuel trading regions, pressure mounts for a gasoline price cut by the state-controlled company, leaving some in the market wary about taking import risks.

"The market has been flooded with very competitive products. We are very careful about gasoline import volumes as the South-Southeast is a saturated, volatile market," a trader at a mid-sized distributor said. "We are in a delicate moment when one could trade at a price [seen as low] and Petrobras could cut theirs right after [making imports less competitive in comparison]."

Petrobras last cut gasoline prices in June, dropping them by Real 170/cu m, the lowest levels posted by the company in 11 months. Before then, the refiner had not moved levels in almost a year.

Back in June, import volumes, as well as Northeast-based private refiner Acelen posted prices, were lower than the state-controlled company's. Acelen's price in Ipojuca, near Suape, was Real 121.60/cu m below Petrobras -- it currently stands at a discount of Real 27.90/cu m.

"We are worried that the market will become increasingly long with this higher inflow of imports, but as the arbitrage is still open, there is space for this product," a trader at a major distributor said. "Petrobras could be an issue, but they would have to cut prices significantly."