Brazil's diesel imports could hit bottom in May

Virus-sapped demand and increased domestic competition for market share could push diesel imports into Brazil to the lowest point of 2020, according to preliminary data analyzed by Argus.

Importers already reeling from the fallout in demand caused by the movement restrictions in response to the Covid-19 pandemic are now facing higher freight costs and more aggressive pricing from state-controlled Petrobras. Considering a shift in the focus of US Gulf coast refineries to the domestic market, this month could prove to be the most trying for importers already wary of unprecedented market turbulence.

Bookings of foreign diesel delivered to Brazil are currently averaging around 145,300 b/d in May, 42pc lower than the 243,000 b/d estimate for April, according to data through 6 May from oil analytics firm Vortexa. Official data from Brazil's trade ministry MDIC have not yet been released.

The reduction in imports is also shown by shorter waiting times for diesel and gasoline tankers at Brazilian ports. Between March and April, the average waiting time for berthing at the country's four main ports — Itaqui, Suape, Santos and Parangua — rose to 3.5 days from 2.75. In the first week of May the average dropped to 1.5 days.

Domestic diesel sales dropped between 20-30pc since mid-March, partially supported by consumption linked to essential services, according to a recent survey conducted by Argus. Market participants expect current consumption levels to persist as long as movement restrictions adopted by most Brazilian states are maintained to curb the spread of the virus.

Importers are facing increased pricing pressure from Petrobras, which has recently launched auctions of diesel lots in a move aimed at reducing domestic stock volumes and protecting its market share. Petrobras has already carried out nine auctions this year for diesel and gasoline, the company tells Argus.

Petrobras' sales strategy has prompted some importers to pause import plans for June. With demand for diesel apparently stabilized, importers are analyzing price points at Petrobras refineries and those in the US, where some refiners have found more interesting opportunities.

"For now, we have halted imports," a representative of a large distributor tells Argus. "Before refiners had an appeal to sell [to Brazil], now we are seeing more movement by Petrobras in the domestic market."

Petrobras has slashed refinery gate prices since the start of the year, and implemented four cuts totaling around 13pc of diesel values since 15 April, to R$1.307/l ($85.2/¢USG).

By Gabrielle Moreira

source: Argus Media