Sao Paulo, 17 October (Argus) — Biodiesel producers are seeking to renegotiate the composition of the price formulas established in contracts for the purchase of methanol from major suppliers of the input, given the recent advance of the spot market in Brazil with more competitive prices.
The formulas of contracts negotiated between biodiesel producers and major methanol suppliers usually include a proportion of the price set by the seller and a variable portion based on a spot market index defined by mutual agreement. This proportion is composed of approximately 80pc of the price given by the supplier and 20pc of the price indexed to a spot index.
The increase in the supply of warehoused product in Paranaguá in the spot market at prices lower than those established in contracts has created an opening for participants to begin negotiating new proportions in upcoming contracts, with up to 40pc of the prices composed of spot market indicators.
Some producers are internally considering increasing the volumes purchased in the spot market to the detriment of volumes agreed upon in contracts. Many of the negotiations with suppliers and definitions of the supply strategy are still in the early stages.
This movement comes in the wake of wide discounts in the spot market for the input placed in the port of Paranaguá via American Gulf contracts. The average of the Argus methanol indicator at the Paraná port was R$/t fob between 27 June-10 October, below the R$/t observed in the same period for the Argus indicator on a cif Brazil basis for product originating from the American Gulf coast under the contract regime.
New entrants in the market are pointed to as the main responsible for a new price dynamic that has formed in recent months. Inputs originating from Russia, where it is possible to offer the product at more competitive prices due to the high availability of natural gas in the country, have come into focus in this new environment.
The first Russian vessels began arriving at the port of Paranaguá in May, with the landing of 2,360t in the month, according to data from the Ministry of Development, Industry, Commerce and Services (Mdic). Between May-September, volumes from Russia totaled 31,269t, accounting for 4.2pc of the total volume of methanol that arrived at Brazilian ports in the period. Last year, the flow of Russian product destined for Brazil was nil, according to Mdic.
Trinidad and Tobago, Chile, the United States, Venezuela and Argentina remain the main origins of methanol for Brazil, accounting for over 90pc of the cargoes sent to the country. These volumes mostly come from large suppliers that operate via contract in the country. In May, a new flow from Oman to Brazil also began, although with less competitive prices compared to the Russian product and in smaller volumes.
Market participants report that there is high availability of methanol in the market, contributing to keeping prices at levels below those seen in the previous year. In addition to the diversification in the origins of the input, biodiesel producers point to the delay in increasing the biodiesel blend in diesel and non-compliance with the mandatory blend by some distributors as elements contributing to the ample supply of methanol.
The increase of the biofuel blend mandate in diesel, from 14pc (B14) to 15pc (B15), was initially scheduled to come into effect in March 2025, but was only implemented in August.
Biodiesel producers, however, had already set annual volumes of the input in contracts, preparing for a demand that did not materialize.
The uncertainty regarding the contracted volumes may occur again in 2026. The Future Fuel Law provides for a new increase in the blend to 16pc (B16) in March of next year. The director of the biofuels department of the Ministry of Mines and Energy (MME), Marlon Arraes, recently said that the deadline for its entry into force may once again be postponed.
By Fernando Ladeira
