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Argentina Biofuel Price Won’t Restore Producers’ Profits

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Sept. 21 (Bloomberg) -- Argentina’s expected price increase next week for biodiesel won’t be enough to appease producers that shut their plants after the country cut prices 15 percent last month, according to grains brokerage J.J. Hinrichsen SA.

The new rate distributors pay for biodiesel will probably be about 4,660 Argentine pesos ($994) a ton, making it hard for small producers to operate profitably after prices rose for soybean oil that’s used as a feedstock, Thomas Hinrichsen, who runs J.J. Hinrichsen in Buenos Aires, said today in a telephone interview.

The government reduced prices in August to guarantee a cheap supply of local biodiesel for YPF SA, the oil company it nationalized from Spain’s Repsol SA in April that buys about two-thirds of the country’s domestically consumed output, Matias Stengel, Argentina regional manager at ED&F Man Holdings Ltd., said today in a telephone interview.

“YPF is a now a state-controlled company,” Stengel said. Before the YPF takeover, “the bill for biodiesel was paid by” oil companies such as Repsol, Exxon Mobile Corp. and Royal Dutch Shell Plc. “Now it will be paid by the government.”

Lowering the price cuts expenses for YPF while driving down profits for producers. At 4,660 pesos a ton, “smaller plants would find it difficult to survive,” Stengel said. The government is not seeking to undermine the entire industry and will probably announce a higher price that’s adequate to support producers, he said.

Biodiesel currently sells for 4,405 pesos a ton, down from 5,196 pesos in July.

Export Duties

President Cristina Fernandez de Kirchner announced Sept. 19 a new formula for calculating biodiesel prices, and cut to 19.1 percent the export tariff that’s partly aimed at ensuring adequate local supplies. Argentina imposed a 24 percent export duty on the fuel in August. The rate will now be revised every 15 days.

Argentina is the world’s largest exporter of soybean biodiesel and mixes 7 percent of the fuel with regular diesel.

“The August price killed the domestic market,” Stengel said. “They want to create a new, flexible way of maintaining a cheap price that’s good enough for the industry to survive.”

The price cut was especially hard on small producers that don’t make their own soybean oil, Ariel Scaparro, president of the biodiesel company Biocombustibles & Energias Alternativas ALS SA, said in a telephone interview.

‘Impossible’ Price

There are 17 small and mid-sized biodiesel producers in Argentina, which “need a price over 5,200 pesos to cover their costs,” Scaparro said. The August rate cut “has made it impossible to continue for most companies.”

Biocombustibles & Energias, based in Buenos Aires, may stop construction on its first two refineries and may scrap plans to build two more because they won’t be profitable at the current price, he said.

“There’s been a U-turn of policy regarding the government’s treatment of biodiesel,” Scaparro said. “The industry is on the verge of closing.”

YPF, based in Buenos Aires, didn’t reply to phone messages and e-mail today.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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