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Brazil to reduce mandatory biodiesel blend to 10% from 12%: minister

Highlights

Brazilian soybean oil supplies reach record low

ANP confirms decision, plans replacement auction

Sao Paulo — Brazilian Minister of Mines and Energy Bento Albuquerque announced Aug. 13 a temporary reduction in the mandatory biodiesel blending level to 10% from the current 12%. The reduction will be effective for volumes negotiated in the 75th biodiesel auction, which should deliver diesel in the months of September and October 2020.

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According to sources, soybean oil supplies this season reached record lows.

Brazil exported higher-than-usual volumes of the byproduct already this season, and the depreciation of the real against the dollar in the ongoing quarter boosted soybean farmers' sales for the current crop season, leaving very few tons available for domestic crushers.

In the second half of July, outright FOB soybean oil prices increased sharply, based on strong basis levels for September loading, reaching on $812.85/mt on July 31, the highest value seen since the beginning of the year. According to sources, there are concerns in the market about the scarcity of soybeans for domestic crush, while at the same time Brazilian demand for soybean oil for use in biodiesel is strong, and soybean oil stocks are low.

"We concluded that there will not be enough biodiesel to fulfill the mandatory mixture of 12% blending for the months of September and October. So we see a need for a blending reduction to 10% during this period," said the minister.

Until the announcement, the Ministry of Mines and Energy had not published any information.

ANP

Late Aug.13 afternoon local time, ANP confirmed the temporary reduction in the mandatory biodiesel blending level to 10% for September and October. According to the regulator, the measure was needed to allow the blending of all of the national diesel supply, once it was determined the biodiesel availability for the period would not be enough to meet demand.

ANP also said auction 75's results had been withdrawn and an additional auction would be scheduled soon for buyers and sellers for the B10 level biodiesel.

Market reaction

Before the ANP statement was issued, sources at BR and Ipiranga, two of Brazil's largest fuel distribution companies, said they were waiting for the regulatory agency to provide clarity on the decision before they took action.

So far in 2020, BR and Ipiranga accounted for a combined 47.83% of Brazilian biodiesel demand, according to ANP.

The sources said it would be necessary to rebalance biodiesel demand among all distributors so the volumes bought in auction 75 were still valid. "While some companies could have a surplus, others could still have a short position to be covered," said a source from Ipiranga, while also noting biodiesel demand would be lower than estimated in the first auction.

Distributors can trade biodiesel outside the auction environment, however, it is uncommon to see large volumes change hands in that way.