Brazil's regulation on imported biodiesel raises uncertainties

Brazilian biodiesel stakeholders are seeking clarifications on the announcement by the country's fuel regulator after it approved the use of imported biodiesel in the country's mandatory blend into diesel, as the news raised some uncertainties among participants.

On Nov. 23, the board of the National Agency of Petroleum, Natural Gas and Biofuels, or ANP, approved the regulation that allows fuel distributors to use imported biodiesel in the mixture with diesel A, currently at 12% and due to increase to 13% as from April next year. The volume able to be imported should not surpass 20% of the total blended nationally, which is currently traded in the spot market.

The so-called Resolution 962/2023 was officially published Nov. 28, extending the Resolution 14/2020 from the Brazilian National Council for Energy Policy that already allowed imports for own consumption or experimental use. The new regulation will be in force as from Jan. 2 next year.

But while the government paves the way to support biodiesel imports, Brazil still has an idle capacity spread across the current 61 authorized producers.

According to ANP data, the nominal biodiesel production capacity in Brazil was around of 13.70 million cu m last year, but real output marked just over 6.20 million cu m. The biodiesel mandate is due to increase 1 percentage point per year to reach 15% in 2026.

Market participants told S&P Global Commodity Insights they were still analyzing possible risks to their businesses following the resolution's publication.

"Depending on the competitiveness, it might trigger further liquidity in the market," a fuel distributor said. "But we are not sure on calculations and numbers yet."

A trader, in turn, pointed out that importers will need to evaluate specific logistical conditions before starting regular purchases as there are still some uncertainties regarding possible taxes.

For now, sources agree that Argentina might be the most benefited from such a regulation as the country is a heavy producer of biodiesel.

"The Argentinian product would impact more in southern Brazilian states because of logistical questions," a source said.

Supplies from Argentina are likely to improve as from April, shadowing the country's soybean harvest and subsequent increase in crushed volumes. Soybean oil is the main feedstock for the Argentinian biodiesel industry.

Brazilian industry, soybean oil sector

ANP's green light for imported biodiesel to be used in Brazil's mandatory blend has displeased local industry, which assures that there is enough supply to meet regulations.

"It is worth highlighting that currently the price of Brazilian biodiesel is better than imported and that there is no shortage of the product," André Nassar, the executive-president for Brazil's Abiove oilseeds crushers association, said in a statement. Still, such a decision might have a "negative impact" on local production, he added.

S&P Global estimates that Brazil will produce 7.68 million mt of biodiesel in 2024, up 14.5% from 2023, as the mandatory mixture into diesel A is due to increase as from April.

On the feedstock front, the scenario that unfolds seems favorable for the Brazilian biodiesel industry as the country is likely to repeat a historical soybean harvest of 158 million mt in the 2023-24 marketing year (February-January), with crushed volumes expected to rise by 3.7% to historical 56.10 million mt, according to S&P Global estimates.

Brazilian soybean oil output might reach a 11.30 million record mt in MY 2023-24, from 10.70 million mt in MY 2022-23, with 5.26 million mt of the edible oil likely to be used for biodiesel production, a 14% jump on the year, S&P Global forecasts.

Soybean oil is the main feedstock for the Brazilian biodiesel industry, accounting for more than 70% of all the raw materials applied in the production process, according to ANP data.