Soaring soybean prices unlikely to stem flood of Argentine biodiesel into EU

The sharp rise in Argentine soybean prices is likely to make soy methyl ester (SME) and biodiesel more expensive in the EU, but higher prices are unlikely to be enough to materially affect demand for these imports that benefit from low export taxes and the recent removal of EU antidumping duties.

China’s announcement last week that it will impose a 25% tariff on soybeans and a wide range of other US goods prompted massive convulsions in the global soybean market, driving up premiums for the crop in Brazil and Argentina, which are the world's number one and number three exporters of the commodity respectively.

In Argentina, industry experts are waiting for a predominant price trend to emerge after a week of highly volatile pricing.

That comes on the back of a prolonged drought, which has seen the size of Argentina’s soybean crop estimates for 2017/18 systematically reduced. 

But a sustained spike in prices “will make it less profitable for domestic producers of SME to sell production to the European market," said Gustavo Idigoras, an external consultant with Argentine biodiesel lobby Carbio and former government agricultural attache in the Argentine Mission to the European Union.

The prospect that prices will rise for SME and biodiesel from Argentina comes at a crucial juncture for biodiesel producers in countries such as Germany, France and Spain, where a flood of cheap imports from the Latin American country has flattened margins.

But in Europe, there is an acceptance that rising prices for Argentine soy is unlikely to translate into big shifts in the EU's biodiesel market.

“The impact of rising soy prices in Argentina on biodiesel exports is likely to be limited as the benefits to producers from the differential export taxes in the country will allow Argentine SME exports to remain competitive on the world market,” said LMC International, a UK-headquartered provider of analysis on global biofuels markets.

Alongside that, the price strength of co-products such as soybean meal and soy oil may also have an effect in managing the higher prices for soybeans. 

“It’s a matter of the crush margin; SME has a considerably lower export duty versus soy oil... Argentina depends on the soy oil CIF landed price in India,” a Buenos Aires-based source said, with India taking 85% of Argentina’s soy oil exports.

“When watching Argentine soy oil or SME, you must watch the whole crush complex,” the source said.

Devil in the detail 

As is often the case, it will be the level of EU tariffs imposed on Argentine biodiesel exports that is likely to be of primary interest to EU-based producers.

The EU is expected within the next few months to impose new, recalculated antidumping duties on biodiesel imported from Argentina after it had to scrap the previous set of levies following rulings by the World Trade Organisation and the European Court of Justice.

EU-based biodiesel producers are lobbying strongly for new import duties, citing a double impact from Argentine biodiesel imports, which use soyoil, a commodity that is much less costly than the rapeseed oil used by EU-based producers.  

European producers say that a flood of cheap imports from Argentina into the EU, said to be around 700,000 mt since late last year, have also depressed fatty acid methyl ester (FAME) prices in the EU, eroding margins for producers still further.

In recent weeks, global agricultural commodities conglomerates ADM and Bunge have announced plans to mothball production at Germany-based plants that have a combined capacity of 395,000 mt/year, citing the impact of increased imports of Argentine and Indonesian biodiesel.   

Industry sources told Energy Census that more EU-based producers are likely to announce curtailments in the next few weeks.