Complicated year for Argentinian biodiesel
Complicated year for Argentinian biodiesel
Drought, potential economic recession and adverse export market could push biodiesel demand to its second lowest level in fifteen years. News from Brazil, Bolivia and the United States.
The lack of rains has substantially affected soybean production, and the harvest volume is expected to be reduced by at least seventeen million tons from the 42 Mil MT recorded in the last season, according to the latest estimates by GEA-BCR. This in itself is expected to have an impact on the Argentinean biodiesel industry, as there will be less availability of raw material for the industrial processing of soybean, which will be only partially compensated by imports from Mercosur countries.
In this context, the production of soybean oil, a basic input for biodiesel production in Argentina, would fall by 22% and total 5.5 Mil MT according to BCR projections for the 2022/23 campaign. This would be the lowest oil production in fifteen years.
However, biodiesel production could be cut to a greater extent than soybean oil. On the one hand, the drought and economic slowdown are expected to reduce the demand for transport of both grain and people, leading to cuts in domestic biodiesel consumption. Moreover, the comparison with consumption in 2022 is not that simple: last year there were six months with a mandatory 5% mix ratio, four months with a 12.5% mix and almost two months with a 7.5%, which is the mandate currently in force today. Having certainty in the mix-ratio dynamics for the year could give more predictability to the sector to be able to operate during this complicated year.
Moreover, compliance with the maximum export quota to the European Union (EU), the main destination for foreign trade in biodiesel, looks complex for 2023. With a capping level of 1.25 Mil MT, successfully met in 2021 and 2022, the outlook for prices and demand does not favor export dynamics, at least for the time being. On the one hand, the value of rapeseed added to its processing cost in the European Union is below the export prices of Argentinean soy biodiesel, according to market sources. Thus, processing this oilseed to produce biodiesel in Europe would currently be more profitable than importing, which limits external demand.
Economic activity in the European Union is expected to show a sharp slowdown in 2023. Far from the above 3.5% boom in 2022, the latest official EU economic growth projection is no more than 1% for 2023. This in itself could limit demand, even if at another point this year the price relationship with rapeseed shows improvement.
With this set of factors, cut-off sales of biodiesel could fall by 18%, while exports could show declines in the order of 37%. Weighing these two factors, demand for biodiesel could be cut by more than 27%. However, we should not overlook the fact that many variable factors have yet to be defined that could disrupt this dynamic in the coming months: potential market interventions, regulatory changes, variations in relative prices, among other elements. This necessarily makes the 2022/23 projection for Argentine biodiesel a preliminary one.
Biodiesel brings news from Brazil, Bolivia and the US
With the beginning of April, Brazil introduces a new mandatory mix ratio for biodiesel: it will go from 10 to 12%. On top of this, the National Council for Energy Policy (CNPE) of Argentina’s main trading partner has drawn up a roadmap that will raise the cut-off by 1% each year. In this way, it hopes to reach a 15% mandate by 2026. In addition to stimulating domestic biodiesel production, the measures include “the reduction of 10 billion liters of diesel imports by 2023”.
Earlier this month, Bolivia began construction of its second biodiesel plant, with the potential capacity to produce 70,000 tons of biodiesel per year. Meanwhile, in the United States, HVO (or Renewable Diesel) production continues to grow faster than biodiesel production, but both products are showing robust growth in the face of the decarbonization of the energy matrix that is being promoted in the North American country, as we recently highlighted in this Weekly Update.
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