Brazil's government is expected to announce Wednesday an increase to the volume of biodiesel mixed with diesel sold at the pump, boosting demand for the biofuel and likely lifting the flagging fortunes of local producers, officials for two industry trade groups said Tuesday.
The move will increase the volume of biodiesel mixed with diesel in July to 6% from 5%, Leonardo Zilio, economic consultant for local vegetable oil producers trade group Abiove, told Platts in an interview. A second increase, to 7% from 6%, will be implemented in November, he added.
"The increase is coming at a good time, and Brazil's biodiesel industry will show that it's capable of responding to growing demand," Zilio said. The measure will also help Brazil maximize the country's soy complex, he added. More than 70% of biodiesel produced in Brazil is made from soy. Animal fat is responsible for a little more than 20% of biodiesel, with cotton a distant third.
The increases are expected to be announced by President Dilma Rousseff at an event in Brasilia and published in Brazil's official Federal Register on Wednesday.
Brazilian biodiesel producers will likely see production rise 10%-15% to 3.2 billion-3.3 billion liters this year to meet demand created by the two increases, according to the Brazilian Association of Biodiesel Producers, or Aprobio. That would make Brazil the world's second-leading biodiesel producer behind the US and the world's third-largest consumer, trailing the US and Germany.
In 2013, Brazil produced 2.92 billion liters of biodiesel.
Brazil produced 745 million liters in the first three months of 2014, up 12.4% from the same period of 2013, according to the latest data available from Aprobio. The total included 259 million liters in March, when biodiesel output rose 12% from the year-ago period.
Production should climb even further in 2015, when the full effect of the two increases is felt, Zilio said. Output needed to meet the B7 mandate will jump to 4.2 billion-4.3 billion liters next year, Zilio said.
The increases would also help ease a glut of biodiesel production capacity in Brazil, which has been operating at about 40% of capacity in 2014. Since the start of the year, 27 biodiesel mills have halted production.
"We are going to use the biodiesel industry's installed capacity much better," Zilio said.
The excess capacity comes after the industry invested heavily to boost production capacity, expecting the volume of biodiesel mixed with diesel to grow more quickly, Zilio noted. But the government has delayed raising the current B5 mandate because of concerns about the impact on inflation and Brazil's trade balance, fears which have since eased, Zilio added.
The increase in the biodiesel mixture could also ease a refining crunch at state-controlled oil company Petrobras, which has been forced to import heavy volumes of diesel to meet surging consumer demand for the fuel. Petrobras lacks the refining capacity to produce enough diesel to meet domestic demand, although two new refineries are under construction and an additional two refineries are planned.
The imports come at a financial cost to Petrobras, which must sell the imported fuel at a loss in the domestic market because the government caps prices so as not to affect inflation in Latin America's largest economy. The biodiesel industry, however, has not been hit as hard by the price caps as ethanol producers, which have curtailed investments because of uncertainties created by the pricing policy, Zilio said.
Petrobras has also been sought to boost biofuel production, with plans to invest $2.3 billion over the next five years to boost output of ethanol and biodiesel, according to the company. About $700 million of that total will target biodiesel and agricultural supplies. The company operates three biodiesel plants in Bahia, Ceara and Minas Gerais states, as well as holds stakes in two additional plants.
In total, Petrobras has the capacity to produce 821 million liters of biodiesel per year.
