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Has Argentine biodiesel found a home in the US?

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After a couple of rocky years, has Argentinian biodiesel finally found a secure destination in the US?

Argentine biodiesel exports are to fall to a seven-year low in 2015, as a falling oil price makes the product less competitive, according the US Department of Agriculture's Buenos Aires bureau.

But exports are seen recovering in 2016, as Argentine biodiesel finds a foothold in the US market.

Entry into the US markets was a lifeline for Argentine producers, as they had already been shut out of the European Union.

However, The USDA has warned that expansion into the US market is set to slow, due to the strict certification criteria that US biodiesel must pass in order to meet renewables requirements.

Destinations needed

Domestic biodiesel demand in Argentina has been driven by a 10% blending mandate. But exports remain key too to mopping up supplies.

Between 2008-14, the USDA estimates that exports accounted for over 70% of the total biodiesel production.

Biodiesel production in Argentina is forecast to rebound to 2.33bn litres next year, from a forecast 2.07bn for this year, although below the 2014 record high of 2.93bn.

But with must producers running significantly under capacity, more export demand must be found if the industry is to grow its profits.

Exports recover

Argentina's biodiesel exports for 2016 are forecast at 1.02bn litres, up from 0.89b litres in 2015 but significantly lower 1.82bn exported in 2014.

Argentina has been struggling to find a secure market for its biodiesel after being was shut out of the European Union market.

Argentina's biodiesel is mostly produced from crude soyoil, with some used cooking oil feedstock, and has the potential to be very price competitive, thanks to modern technology and the fact that production is well integrated into Argentina's massive soybean industry infrastructure.

There is also support from the tariff system.

Argentine biodiesel exports are currently taxed at just 10.9%, compared with soybean oil tarrifs of 35% and soybean oil at 32%.

But given current low oil prices, biodiesel is only able to compete with mineral diesel in jurisdictions where it qualifies for special government assistance.

EU shutout

The EU used to be the main destination for Argentine biofuel, but in 2013, when the EU imposed anti-dumping tariffs on Argentine biodiesel, in an attempt to prevent the low-priced product from glutting the market and undermining the local industry.

But thanks to relatively high oil prices and low soybean prices, which made Argentine produced biodiesel cheaper than diesel, local exporters were able to move into the discretionary blending market, particularly in North Africa.

This came to an end with the collapse in crude prices in late 2014, leaving blending biodiesel into fuel a losing proposition.

This meant that Argentina had to focus on destinations that had government support for blending

EPA lifeline

The industry received a lifeline at the start of this year, when the US Environmental Protection Agency (EPA) approved an Argentine certification scheme, which would make it easier for the product to qualify for a Renewable Identification Number (RIN).

RINs are used to track whether US fuel suppliers are meeting their biofuel blending mandates, and they can be traded like carbon credits.

This means that RINs qualification is key for producers looking to supply biofuel into the US market.

The EPA's approval leaves the Argentine biofuel industry ready to up its output of RIN-certified biodiesel, and expand into the US market.

US market

Argentina has 38 biodiesel plants, of which seven are now registered to produce RINs certified biodiesel.

Biodiesel exports to the US had already grown to 180m litres in 2014, thanks to discretionary blending.

Now the US Department of Agriculture's Buenos Aires bureau reports that local traders expect exports to reach 625m litres in 2015, and 750m litres in 2016.

Peruvian dispute

Another steady market for Argentine biodiesel has been Peru, which over the last three years has been importing around 250m litres a year to fulfil blending mandates.

But this market too is threatened, after Peruvian official launched an investigation into allegations that Argentine was dumping subsidised biodiesel in Peru.

The dispute, which broke out last year, has yet to be resolved, and threatens the stability of Peruvian exports.

As for other potential destinations, if soyoil prices stay low, and crude oil prices recover, Argentina may be able to return to the discretionary blending markets.

The USDA also reports that "some contacts speculate that biodiesel exports to the EU could eventually resume, but no earlier than late 2016 or 2017".

By William Clarke

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