Brazilian state-led oil producer and refiner Petrobras has raised bulk LPG prices for domestic commercial and industrial users by an average of 7.2%, effective Wednesday, as the company continues to adjust product prices to keep step with market movements and increased competition.
"The decision is explained primarily by the variations in quotes for the product in international markets since the last revision in prices," Petrobras said.
Petrobras reduced bulk LPG prices for domestic commercial and industrial users by 4.0% in early April, which was the last price adjustment.
Last week, Petrobras increased LPG prices for residential consumers by 6.9%. Residential consumers typically utilize 13-kilogram tanks, which are not affected by Wednesday's increase, the company said.
The price move is the latest adjustment since Petrobras implemented new policies for most of the company's top-line domestic products, including diesel, gasoline and LPG. Petrobras has faced increasing competition from third-party importers while trying to maintain product margins to recoup revenue lost to government enforced fuel subsidies in 2011-2014.
The policy for diesel and gasoline aims to keep domestic prices in line with import parity plus an additional margin, with changes made on a near-daily basis since early July.
LPG prices, meanwhile, are based on the monthly average of European butane and propane prices, plus a margin.
Petrobras, however, has stated that it is not aiming for LPG price parity with international benchmarks because of the fuel's socioeconomic impact. LPG is used primarily by low-income families as a cooking fuel in rural or remote regions not served by natural gas pipelines, including many of the hillside slums prevalent in the country's major metropolitan areas.
About 85% of Brazil's LPG consumption is by residential users. Brazil imports about 25% of its total LPG needs, with Petrobras responsible for 100% of the country's import volumes.
But Petrobras' new policy has created a distortion in prices that could inhibit private investment in Brazil's LPG sector, according to trade group Sindigas.
According to Sindigas, residential LPG prices for tanks holding 13 kilograms or less were about 22% below import-parity prices. Wednesday's increase to bulk commercial and industrial LPG prices, meanwhile, will leave that segment of the sector paying prices that are 39.9% above import-parity prices, it says.
"The increase to LPG prices for tanks meeting commercial and industrial demand is worrisome because it decouples even more international prices from the values practice in international markets, directly affecting the sectors that need to reduce costs," Sindigas said in an emailed statement.
Petrobras is in the process of exiting LPG distribution as part of a wider retreat from areas outside its core focus of producing oil and natural gas from offshore fields in the prolific subsalt region. Petrobras plans to sell $21 billion worth of assets in 2017-2018.
The sale of the Liquigas LPG distribution unit is currently underway, although the justice ministry's antitrust division, known as CADE, could force some asset sales to reduce concerns about Petrobras' proposed $848 million sale to smaller rival Ultrapar Participacoes.
Ultrapar is currently Brazil's biggest LPG distributor, with nearly 24% of the market. Liquigas is second, with a 22% market share. There is significant overlap between the two companies in some areas that will give Ultrapar dominant market positions, so many industry officials expect CADE may require that specific assets be sold off as part of the deal's approval.
