Low Argentina rivers lift Brazil biodiesel

A drop in river levels in Argentina's Parana upriver region amid a historical drought has snarled transport and inflated soybean oil and biodiesel prices in Brazil.

The depth of the Parana River in Argentina's San Lorenzo city, a major hub for soybean oil shipments, dropped to 9.44m (30ft) on 20 September, the lowest level since January 2023, according to information provided by maritime agencies T&T and Antares.

The lower river flow is forcing soybean oil traders to reduce how much product they load onto tankers that stop at Argentinian ports by between 5-12.5pc, according to Argentina market sources. A 12.5pc capacity reduction on a standard tanker would mean a loading 28,000 metric tonnes (t) instead of 32,000t.

These restrictions have affected the Brazilian soybean oil and biodiesel market, as trading companies seek additional volumes in Brazilian seaports to complete shipments for export. A change in Chicago Board of Trade (CBOT) differentials at the port of Paranagua was first observed on 27 September, when the premium for selling soybean oil for shipment in October rose to 8¢/lb in relation to the future contract traded on the CBOT. Earlier in the week, offers were close to 1.8¢/lb. On 25 September, negotiations ranged between premiums of 2.5-5.5¢/lb in relation to the soybean oil future contract due in October, corresponding to prices between $1,034-1,100/t fob Paranagua. Last week, the Argus fob Paranagua indicator closed between $934-1,009/t.

Soybean availability in the Brazilian market is reduced amid strong demand in the domestic market, driven by an increase in the biodiesel blending mandate to 14pc from 12pc in March.

The rise in domestic demand has also reduced the competitiveness of Brazilian exports, contributing to a drop in soybean oil shipments to ports. Brazil's association of vegetable oil industries Abiove predicts that 2024 exports will total 1.15mn t, nearly half of the volumes dispatched in 2023.

Lever effect

The low availability of soybean oil in the Brazilian market was concerning market participants even before the deterioration of the situation in Argentina.

The price of soybean oil for export is the main factor in the price equation for most supply contracts between biodiesel producers and distributors.

Logistics problems associated with a lower Parana River contribute to the imbalance between increased demand for soybean oil in the biodiesel sector and a shortage of product in the market.

Soybean oil is the main input for biodiesel production in Brazil, accounting for 72.5pc of all feedstocks used in national production in the first eight months of 2024, according to data from hydrocarbons regulator ANP. And rising soybean oil prices tend to boost prices of other raw materials, such as beef tallow, which represented 6.5pc of biodiesel inputs in the same period.

Faced with the rising cost of inputs, Brazilian biodiesel plants have been prioritizing the delivery of volumes contracted for the September-October supply period and the delivery of overdue volumes for the previous bi-monthly period. That has limited the availability of spot market volumes.

This sudden rise in the price of soybean oil in Paranagua has also reduced the domestic market premium in relation to the export market. This makes it more attractive for regional producers to sell product abroad.

By Amance Boutin and Joao Marinho