Decline in Argentina biodiesel exports accelerates

OREANDA-NEWS. June 24, 2015. Argentina's biodiesel industry is expecting a 70pc plunge in exports this year, as high export duties and domestic price declines threaten the viability of companies across the sector.

Exports tumbled by 75pc to 12,170 tonnes in April, compared to the same month last year, according to preliminary industry estimates. The decline continued in May, when sales abroad dropped by 70pc to 35,000 t.

The April and May downturns indicate an accelerating decline from the first quarter, when sales abroad dropped by 55pc to 95,805 t, compared to January-March last year, according to official data from the government's Indec statistics agency.

If the current downward trend continues, Argentina may end up exporting as little as 500,000 t of its soybean-based biodiesel this year, according to Victor Castro, head of the Argentinian biodiesel chamber Carbio, which represents the country's biggest export-oriented producers. That would represent a 69pc decline from 1.6mn t of biodiesel that the country sold abroad last year and a decrease from previous estimates that the country's biodiesel exports would plunge by half to 800,000 t this year compared to 2014.

Since 2013, when the EU imposed anti-dumping tariffs on biodiesel imports from Argentina which effectively closed off what had been the largest and most reliable market for the country's biofuel, the local industry had relied on temporary spikes in conventional diesel prices to sell biodiesel to traders. These spikes allowed biodiesel exports to increase by 39pc last year to 1.598mn t, compared to 2013. Those opportunities largely dried up after the plunge in oil prices in mid-2014.

Peru is now an increasingly important market for Argentina's biodiesel exports, amounting to around 25pc of the total in recent months, according to Castro's estimates. But the Peruvian market is not big enough to compensate for the loss of the EU market and the effect of the decline in oil prices.

In the domestic market, small and medium-sized producers are threatening to suspend operations and cut off biodiesel supply to local refineries to meet a 10pc blending mandate, unless the government increases prices.

Prices for May, which were published by the government last week, increase the compensation biodiesel producers receive for their product by around 1pc, which is not enough to offset a 7.5pc decrease in April.

Francisco Jauregui, executive director of the Cepreb chamber that represents small and medium-sized biodiesel producers, calls the situation "critical".

The formula the government uses to calculate domestic prices is heavily influenced by the cost of soybean oil "and it fails to reflect the reality of the sector," Jauregui said. Labor costs, for example, are increasing, independent of the raw material. Sector companies agreed to a 36pc annual wage increase last month following more than three weeks of strikes by oilseed crushers. Argentina?s inflation is running at an annual unofficial rate of around 30pc.

"There are companies that cannot operate with these prices," says Jauregui.

Argentina has a tiered wholesale pricing scheme for biodiesel based on the size of production: small producers with output up to 20,000 t/yr; medium-sized producers with up to 100,000 t/yr; and large, export-oriented producers, which are further divided between integrated and non-integrated plants. The small and medium-sized producers supply around 80pc of the domestic market while the larger producers focus on the export market.

The government is supposed to update domestic biodiesel prices every fortnight but it rarely does and often takes months to update prices retroactively.

The effective export duty on biodiesel declined by 3.4pc points to 9.8pc in May. But producers cannot predict the June rate. There was widespread optimism when the duty was almost halved to 5pc in March, for example, but this evaporated when the duty was raised to 13.2pc in April.

While the industry continues talks with the government about prices and export duties, officials and industry leaders are working to reopen the European market through the World Trade Organization (WTO), but a resolution is not expected before the end of the year.