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Argentina hikes biofuel prices 6% for refiners despite pump price freeze

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Buenos Aires — Argentina's Energy Secretariat said Wednesday it has raised the minimum prices oil refiners must pay for biodiesel and ethanol supplies for use as fuel additives in October by 6%, even as a freeze on diesel and gasoline retail prices hurts profits in the downstream sector.

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The price of biodiesel, made mostly from soy oil in the country, was increased to Peso 35,365/mt ($612/mt) effective October 1, up from Peso 33,618/mt in September, the department said on its website. Refiners are required to meet a 10% biodiesel blend in diesel products.

The department also increased the price for sugarcane-derived ethanol for a mandatory 12% blend in gasoline products to Peso 27.203/liter effective October 1, up from Peso 25.663/liter in September, and raised corn-based ethanol to Peso 24.635/liter from Peso 23.241/liter over the same period.

The secretariat did not say why it raised the prices or what the impact could be on oil refiners.

The downstream sector took a hit when the government issued a 90day freeze on crude, diesel and gasoline prices August 15 to try to contain inflation, which is expected to accelerate above 55% after a more than 20% plunge in the peso's exchange rate with the dollar since mid-August.

The freeze has cut the local price of crude by about 20%, leading to a 20% decline in revenue on diesel and gasoline sales, according to state-backed YPF, the country's biggest oil producer and refiner.

"The situation today is difficult, without a doubt," YPF CEO Daniel Gonzalez said at a press conference last week.

While he said the government is taking steps to pull out of the price freeze "gradually," the company has had to cut investment, including by sidelining rigs in Vaca Muerta, the country's biggest shale play.

"We want to minimize the impact on activity" from the price freeze, he said, adding that YPF's revenue has dropped by $100 million-$120 million per month at a time when access to credit for investments is restricted. The benchmark interest rate is nearly 80%, the highest in the world.

LITTLE LEEWAY TO ACT

Despite the hike in biofuel prices, refiners have little leeway to act because of the price freeze on one side and sagging demand on the other.

The country is in a second year of recession that has worsened and is limiting demand for refined products. The latest survey of economists by the central bank shows the economy likely won't recover until 2021, a year later than previously expected.

Gasoline sales dropped 2.8% to 155,683 b/d in August year on year, led by a 10.4% plunge in 98 RON sales, while diesel sales plunged 12.5% to 212,573 b/d over the same period, driven lower by a 42.9% decline in ULSD sales, according to the latest data from the Energy Secretariat.

Another hardship for the refiners is the need to import. While most of them are operating below capacity--at an average of 75% in July, according to the latest official data--all of them are importing higher-grade products because they have not made upgrades to produce enough ULSD and 98 RON gasoline to meet demand. By law, they must adequately supply the market or face fines or even plant closures, meaning they have to continue to import, regardless.

-- Charles Newbery, newsdesk@spglobal.com

-- Edited by Jim Levesque, newsdesk@spglobal.com

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