Almost a million tons of bio-diesel which was exported to Spain will now have to be absorbed by Argentina’s domestic market following on Madrid’s decision to cut all imports because of the seizure of oil corporation YPF from Repsol by the administration of President Cristina Fernandez.
Spain was Argentina’s main bio-diesel client having imported 995.599 tons in 2011 equivalent to 1.2 billion dollars, which is almost half the total revenue for the item, 2.3 billion.
“Loosing overnight your main client is a problem, but hopefully there will be alternatives that could make the issue less painful”, said an industry source.
Agriculture consultant Gustavo Lopez said that the immediate options are domestic consumption or exporting to other countries. “Since Spain will have to buy bio-diesel in other markets, probably France or Germany, Argentine exports could then be addressed to those markets” speculates Lopez.
However the president of the Bio-fuels Chamber, Fernando Pelaez revealed that the sector was preparing for such an event since Spain had threatened on previous occasions to cut bio-diesel imports. “Looking for potential customers overseas is an idea but the strongest option is to elevate the domestic gas-oil content from 7% to 10%”.
Pelaez estimates that a 10% bio-diesel content could see cars absorb 380.000 tons; buses, trucks and farm machinery another 400.000 tons and thermal electricity generating units, 300.000 tons.
Argentina is the world’s fourth producer of bio-diesel and the main world exporter, which is also crucial for the soybean industry which has an annual turnover of 20.7 billion dollars, made up of 3.3 billion dollars in beans; 11 billion in soy flour; 4.2 in soy oil and bio-fuels, 2.3 billion dollars. Last year Argentina exported 1.9 million tons of bio-diesel.
Likewise capturing new markets is not easy, because Argentina could also face a solidarity gesture from the European Union with Spain and the EU absorbs 82% of Argentina’s bio-diesel production. “Bio-diesel is more expensive than oil and only countries with an environmental commitment are interested in the product”.
Furthermore the US, the world’s main consumer demands strict environment certification such as that the soybeans were not planted in de-forested areas nor slave or infant labour is involved. “We are working on those protocols”, said the president of the bio-diesel chamber.
Another option is turning all that soybeans into cooking oil but that industry is strongly established with several global corporations in the business, points out Pelaez.
“Currently at 1.300 dollars the ton, the bio-diesel business is attractive, and on occasions it soared to 1.800 but also to 500 dollars” added Pelaez who indicated that at least 20 plants, each demanding an investment in the range of 80 to 100 million dollars are involved in the industry in spit of the “volatility”.
Finally leaving aside Spain, the industry is facing more challenges: customers are demanding a far more refined bio-diesel with less impurities which increases costs by at least 30 dollars a ton, “which erodes profits”.
Meantime from Spain the government of President Mariano Rajoy has toned down its attacks on Argentina because of the seizure of YPF and states that there is no intention of “implementing reprisals”.
“The economic interests of Spain in Argentina are not limited to Repsol and the strategic relation between both countries go beyond the misunderstandings between the two governments”, said Industry, Energy and Tourism minister Jose Manuel Soria, one of the most combative officials from the Rajoy government.