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Rio de Janeiro — Brazil reduced the volume of biodiesel blended with diesel sold at the pump to 10% from 12% for September and October amid expectations of short supplies and a rebound in diesel consumption, the National Petroleum Agency said in an Aug. 13 statement.

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"The measure was necessary to ensure domestic supplies, given that the supplies of biodiesel for the period cited may not be sufficient to meet the 12% biodiesel blend that has been widely consumed despite the pandemic," ANP said.

In addition to the reduced biodiesel-diesel blend, the ANP also restarted the third phase of 75th biodiesel auction, which was suspended Aug. 7, to include the new mandate. The latest reduction followed a similar cut June 16-21.

"We verified an imbalance in the supply of biodiesel, given the demand expected for the next two-month period," Mines and Energy Minister Bento Albuquerque said during a webinar.

Biodiesel producers reined in output March and April as Brazil started to implement social-distancing measures aimed at containing Latin America's largest coronavirus outbreak. Diesel demand was expected to tank with public transportation idled, long-haul transport shut down, and the agricultural harvest delayed.

The lack of sufficient biodiesel supplies was a source of concern at auctions ANP held since April. But the Mines and Energy Ministry and ANP said June 28 that biodiesel producers were capable of meeting demand under the 12% mandate.

While biodiesel producers say they have enough capacity to meet demand, diesel demand has been growing at a quicker-than-expected pace that has outrun producers, industry officials say. Complicating matters is China's voracious appetite for soy, which is gobbling up raw materials used in biodiesel production and has forced some producers into international markets in search of raw materials.

But the reduction is a blow to Brazil's plan to expand renewable consumption under the government's RenovaBio program. RenovaBio aims to reduce Brazil's demand on imported barrels and reduce the country's greenhouse-gas emissions in accordance with targets the Paris agreement set. The plan includes annual 1 percentage point increases in the volume of biodiesel blended with diesel sold at the pump to 15% by March 2023. The biodiesel mandate was most recently increased to 12% March 1.

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.

Abiove expected Brazil to produce about 7 billion liters of biodiesel in 2020, while Ubrabio forecast growth to 6.9 billion liters. The forecasts, however, were made before the full effect of the global coronavirus outbreak was known.

Biodiesel output rebounded in June, but several agricultural regions have seen increases in coronavirus cases in recent months.

Brazil produced 533.3 million liters of biodiesel in June, up 15.5% from 461.6 million liters in June 2019, ANP said Aug. 3. June's biodiesel production was also up 11.3% from 479.1 million liters in May, ANP said. In the first six months of 2020, biodiesel production jumped 9.3% versus the same period a year ago to 2.95 billion liters, according to ANP.

The bimonthly biodiesel auctions may actually be part of the issue, the Mines and Energy Minister noted during the webinar. Government officials have previously said that the auction system will likely be abandoned by 2022.

"We need the process to evolve into something more open, dynamic, and competitive that adheres to the new dynamics of the market," Albuquerque said, noting the biodiesel auction system increases costs to downstream suppliers.