COMMODITIES 2025: Brazil diesel demand to recover in Q1 amid maintenance

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Diesel demand in Brazil is expected to increase by the end of February after a flurry of pressured sales in 2024, supported by the soybean harvest and the refinery maintenance season. This could result in spot deals on an FCA basis remaining rare during January.

Diesel had a downturn in demand seen more pronouncedly in November, when retail sales fell 11.42% on the month to 5.52 million cu m, data from the National Petroleum Agency, or ANP, showed. That volume was already the lowest in 2024 since 5.4 million cu m seen in March.

Diesel consumption in Brazil is usually weaker during the fourth quarter and at the beginning of the year due to truck transportation across the road-dependent country slowing down for the holiday break, and because it marks the season between crop harvests.

"It is still difficult for demand to return in January, but at least we still see the stocks stabilized," said a source from a relevant distributor. According to him, Brazilian diesel stocks were high, around 15 days, although not increasing.

S&P Global Commodity Insights research forecasts that diesel consumption will grow 1.9% in 2025 from 2024 levels, supported by relatively strong economic activity, according to its Latin America Short-term Outlook report published on Dec. 27.

At the retail level, ANP data showed sales were up 3.39% in January-November 2024 from the corresponding period in 2023, totaling 60.18 million cu m.

Soybean harvest, refinery maintenance

February's improved demand is expected to result from the soybean harvest. Demand in the Brazilian Center-West region is usually driven by agricultural machinery activity, which starts to pick up at the start of the soybean harvest season.

Brazilian crop production is expected to increase by 12.5% in the 2024/25 season to 166.2 mt, according to Brazil's food supply and statistics agency Conab. The area is estimated to increase by 2.6% compared to the 2023/24 season, to 47.4 million ha. "The diesel demand from soybean season is expected to be more noticed by the end of February," a trader said.

The refinery maintenance season may also support increased imported diesel demand in the first quarter. Brazil's refining throughput is projected to reach approximately 1.93 million barrels per day in 2025, a slight decline of 0.8% compared to 2024. This downturn would be attributed to scheduled maintenance activities across several Petrobras facilities, which are anticipated to disrupt crude runs at the country's refineries.

Crude distillation units at the RNEST refinery will undergo maintenance in the first quarter, while the RPBC and REFAP refineries are set to halt operations in the second quarter, followed by the REVAP refinery in the third quarter.

"In February-March, refineries will be under maintenance, leading to a decline in oil and diesel production," said Joao Lopes, a Commodity Insights analyst in fuels and refining. "RNEST only produces diesel and will completely shut down."

Higher diesel domestic production was one reason for the slowdown in diesel imports. National Petroleum Agency, or ANP, data released on Dec. 31 showed Brazil's refineries boosted diesel output in November in the yearly comparison. Refineries produced 25.903 million barrels of diesel, up 6.9% from 24.242 million barrels in November 2023, the ANP said.

November's diesel output, however, sank 8.4% from 28.277 million barrels in October. October's diesel production was the highest of 2024 so far, according to the ANP data.

In 2024, Brazilian diesel imports increased by 12% compared with 2023, according to preliminary S&P Global Commodities at Sea(opens in a new tab) data.

The total preliminary volume was around 13.2 million mt. Brazil's domestic diesel prices faced downward pressure due to rising diesel inventories from increased imports. Petrobras' operational results for the third quarter showed that diesel imports and production exceeded sales from July to September 2024. The company produced 708,000 b/d of diesel from January through September, imported 68,000 b/d, and sold 723,000 b/d in the same period.

Diesel sales took a hit in 2024 because the biodiesel blending mandate rose to 14% on March 1. The government plans to implement an additional 15% increase in March 2025. "The increase of the blend of biodiesel in diesel may offset any demand increase for diesel before the demand slowdown again," Lopes said.

Price on the rise

In recent weeks, Brazil's spot prices for ultra-low sulfur diesel, or S10-grade diesel as it is branded in the country, have been increasing, reflecting much higher replacement costs for importers due to rising futures on the NYMEX. The current foreign exchange market level is also increasing S10 diesel import prices in Brazil. The US dollar reached a Real 6.20/$1 exchange rate in December, and it has remained around this level ever since.

NYMEX futures contracts and the exchange rate kept imported S10 diesel at a high premium level against Brazil's state-owned Petrobras' domestic reference prices.

Platts, part of S&P Global Commodity Insights, assessed FCA Santos port prices at Real 3682.60/cu m on Jan. 6, at a Real 150/cu m premium to Petrobras' EXA Paulínia prices. Santos is a port in the Southeast with the highest trade volumes for S10. In the Northeast, Platts assessed the FCA Itaqui port price at Real 3,744.50/cu m on Jan. 6, a Real 390/cu m premium to Petrobras' ETM São Luís price.

The ULSD Itaqui import parity price was Real 3,905.75/cu m on Jan. 6, down from Real 3,923.16/cu m on Dec. 31. ULSD Itaqui IPPs have rebounded since dropping to a 2024 low of Real 3,198.55/cu m on Sept. 17.

Before that, ULSD Itaqui IPPs last peaked in July, when Platts assessed them at Real 4,175.29/cu m on July 2. Importers and distributors in Brazil have reported soaring replacement costs for bringing new foreign ULSD into the country and are having difficulties in doing so, as domestic prices are much more competitive.

Petrobras has kept its ULSD posted prices unchanged since December 2023, helping maintain the import window closed, according to the fuel importer association Abicom in a Jan. 7 report, for the last 69 days, with local Petrobras S10 diesel at an average 14% discount to imports. The average spread between domestic and import parity prices in Brazil's six main fuel importing regions was at minus Real 500/cu m on Jan. 7, according to Abicom, meaning domestic prices were more competitive than imports.