INSIGHT: Argentina biodiesel industry reels from government actions

14 August 2012 20:25  [Source: ICIS news]

By Leela Landress

MEDELLIN, Colombia (ICIS)--Argentina’s tax hike on biodiesel exports and lowering of domestic prices, in a move to make domestic fuel prices more affordable, could undermine the viability of the biodiesel industry.

The export tax jumped to 32% from 20% over the weekend, according to a government decree. The South American country is the world's biggest exporter of biodiesel.

“First we had to deal with the YPF seizure and lost our biggest export destination, now we have been hampered from much, if any, exportation and lower official prices here,” said a market player. “This could kill the industry.”

Also, the government established a lower official price for domestic biodiesel at Argentina pesos (Ps) 4,405/tonne ($957/tonne, €775/tonne). According to news accounts, this is a 15% reduction.

The Argentine biodiesel chamber (Carbio) requested an audience on Tuesday with the executive monitoring unit, a government agency responsible for biodiesel pricing, to express concerns over the newly announced taxation and pricing policies.

Carbio said that from 2003 onwards it developed a biodiesel industry that has grown exponentially over the past five years, allowing Argentina to become the fourth largest producer and leading exporter of biodiesel worldwide, with revenues of $2bn (€1.6bn).

The group added that biodiesel investments had reached Ps 4.8bn and production capacity reached 3.4m tonnes/year (898m gallons) would reach 4m tonnes in 2013.

Government economist Axel Kicillof justified the tax hike by saying that Argentines are paying more for biodiesel than are foreign buyers.

"This move for lower prices will put small and medium companies out of business," an industry source said.

The chamber of small and medium biodiesel producers (CEPEB) appealed to the Argentine government on Monday and said that their situation following the new decree was “desperate”.

Members of CEPEB said in a letter to the executive monitoring unit that the new legislation is, “producing the complete breakdown of the economic balance of companies like ours, and therefore we are unable to continue to produce and to meet our supply commitments”.

The group said that unlike the large producers, who are largely multinational corporations, they are not vertically integrated and cannot continue to operate under the new requirements.

“With the price set at Ps 4,405/tonne, small and medium non-integrated producers will have a negative margin of Ps 900/tonne,” CEPEB said.

The EU is the biggest market for Argentine biodiesel, which shipped a total of almost 900,000 tonnes of biodiesel in the first half of 2012, according to Oil World industry data.

Market talk about possible tax hike on international shipments of soy and other raw grains has been in the market over the last few weeks and has put downward pressure on prices.
Market players in the region say that the market has been largely quiet in the last week, and the soy methyl ester (SME) export bid/offer range is assessed at $1,062-1,082/tonne FOB (free on board) out of the port of Rosario in Argentina.

Spain retaliated against Argentina in April for the expropriation of Spanish-owned YPF, with a measure to curtail Argentine biodiesel imports.

Spain started requiring that all biodiesel used there be sourced from EU producers. The measure effectively blocks imports of the fuel from Argentina, which is the main supplier to Spain's biodiesel market.

($1 = €0.81) ($1 = Ps 4.603)

By: Leela Landress
+1 713 525 2653

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