Argentina to extend duration of higher biodiesel blend, says energy minister

Soybean oil demand for biofuel blending will likely push towards the 2 million tonne mark for this year

Argentina’s government will extend its 12.5% biodiesel blend rate as part of its efforts to alleviate the impact of high costs of imported fossil fuels after having hiked the upper threshold in June from 5%, the country’s energy minister said in a social media post.

The move is likely to mean less soybean oil available for export but is unlikely to impact biodiesel exports to Europe - at least in the short term.

That’s because arbitrage opportunities for the soy oil based biofuel had already dwindled for the remainder of 2022, the US Department of Agriculture said in a GAIN report earlier this month.

“We are convinced that we must invest in biofuels, which allow us to save foreign currency. That is why we have decided, together with the Minister of Economy Sergio Massa and the Secretary of Agriculture, to extend the 12.5% biodiesel cut-off,” Argentina’s federal Secretary of Energy Flavia Royon said on Twitter.

The Argentine government hasn’t yet confirmed the move on its websites, nor in the country’s official journal.

But the initial hike in the blend rate in June, which was approved for 60 days, took a few days to be made official after news reports first emerged on the measure.

South America’s second-biggest economy is majorly reliant on fuel imports that are denominated in dollars, with the US currency highly prized by Argentina’s government in the wake of its weak domestic currency and rampant inflation.

Royon nor other ministers have specified how long the extension of the blend rate will be in effect.

The most recent USDA WASDE report, published on August 12, predicted that Argentina is poised to export 5.8 million tonnes of soybean oil in 2022-23, up 8% on the previous season - but that forecast was made before Royon’s Tweet signaling an extension.

The USDA’s recent country-specific GAIN report on Argentina biodiesel, which is published separate from WASDE, said its forecast of 920 million liters of domestic biodiesel consumption for 2022 will likely be larger if the 12.5% blending ceiling was extended beyond 60 days.

By way of comparison, Argentina consumed 500 million liters of biodiesel in 2021, the USDA said.

For this year, capacity utilization in the sector is estimated at 47%, compared with 30% in Q2 2020 when Argentina was subject to strict lockdowns, but the current year’s forecast is far below the 65% seen in 2017.

Higher biodiesel consumption drives domestic soybean oil demand

Based on the initial 60-day period of the raised blend rate, the USDA’s Buenos Aires station said it expected soybean oil consumption in biodiesel to be 1.85 million tonnes in 2022, 7% higher than in 2021.

With Argentina’s government signaling that the duration of the higher blend rate will be extended, soybean oil demand in biofuel blending will likely push towards the 2 million tonne mark for this year.

That same USDA report forecast that 1.2 billion liters of soybean oil based biodiesel (soy methyl ester) are expected to be exported by Argentina this year to the EU, which would be around 12% lower than the 1.36 billion liter export quota that applies to this trade since 2019.

According to its research, the US government added, 1 billion liters have been shipped in the first half of 2022, with only one additional boatload of about 30 million liters committed over the next few months as the EU’s minimum import price shuts any window of arbitrage.

In common with its grains exports, shipments of biodiesel to Europe are a high priority for the country’s producers and the government because they are a valuable source of foreign currency.

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