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BRAZIL DATA: March biodiesel production rises despite higher feedstock costs

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BRAZIL DATA: March biodiesel production rises despite higher feedstock costs

Highlights

Brazil raises blending mandate to 13% March 1

Price issues force May-June output reduction

Raw materials demand behind pressure

Rio de Janeiro — Brazil boosted biodiesel production year on year in March after Latin America's biggest country increased its biodiesel-diesel blend March 1, but high raw-materials prices remain a challenge to additional growth in 2021, according to data released April 26 by the National Petroleum Agency, or ANP.

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Brazil produced 639.9 million liters of biodiesel in March, an increase of 16.3% from 550.3 million liters in March 2020, the ANP said. March's biodiesel production also advanced 21.9% from February's 524.9 million liters.

Biodiesel output climbed 11.1% year on year on the first quarter to 1.67 billion liters, the ANP said.

The increased output came as biodiesel producers prepared to meet demand generated by the higher biodiesel mandate, which is part of a broader plan to increase the volume of biodiesel blended with diesel sold at the pump to 15% by March 2023. Future growth, however, remains uncertain after producers' attempted to pass along higher raw-materials costs to consumers in a move that once again forced the government to temporarily back down from its ambitious plans to increase the use of renewable fuels.

The Mines and Energy Ministry reduced the biodiesel-diesel blend to 10% from 13% for the May-June period April 9 after biodiesel prices soared at the ANP's 79th biodiesel supply auction. That was the fourth adjustment to the biodiesel-diesel blend over the past year, including a reduction to 11% from 12% in the November-December period, and represented a stunning reversal after the country had implemented the 13% mandate on March 1.

The ANP was forced to suspend the 79th biodiesel supply auction April 7 because of the price spike, which reached more than double the retail price of a liter of diesel at its peak. The auction was then restarted utilizing the lower 10% biodiesel-diesel blend for the May-June period that covered the sale's deliveries, with producers selling 1.05 billion liters at an average price of $1.02/l, the ANP said. That compared with the sale of 1.31 billion liters at an average price of $0.8514/l during the 78th supply auction held in February.

GROWTH CHALLENGES

The setback was just the latest in a series of challenges Brazil's biodiesel producers have faced during the world's second-deadliest coronavirus outbreak, with Brazil's surprisingly resilient diesel demand and a sharp rebound in activity from key trade partner China driving the turmoil.

Producers initially reined in production amid expectations that domestic diesel demand would fall because of social-distancing measures implemented to contain the outbreak. But Brazil's downturn in diesel consumption was short lived, with record-setting oil seed and sugarcane harvests stoking demand for diesel in the second half of 2020. The surge in demand caught biodiesel producers by surprise.

In addition, demand for soybeans surged as demand from China pushed prices for the commodity to record levels. That caused biodiesel prices to spike, forcing some biodiesel producers to import soybeans and oil from overseas to use in biodiesel production.

About 71% of Brazil's biodiesel is made from soy, with the rest coming from animal fats and other oils such as recycled cooking oil, according to the ministry.

Biodiesel producers reacted angrily to the latest adjustment, calling on the government to reverse its decision and warning that the issue could affect much-needed investments in the sector aimed at helping Brazil reach its emissions goals. Biodiesel producers have relied heavily on the scheduled increases to the biodiesel-diesel blend to soak up the sector's excess production capacity.

Each 1% increase in the biodiesel-diesel blend sold at the pump represents about 600 million liters/year of additional production, according to the Brazilian Biodiesel and Biokerosene Union, or Ubrabio, and Brazilian Vegetable Oil Industry Association, or Abiove.

Both trade groups represent biodiesel producers in Brazil.