A strike by truck drivers in Brazil demanding government action over rising diesel costs has entered its second week, paralyzing transportation and logistics, and bringing serious consequences for several industries and services, with police reporting blocked roads and ports in nearly all of Brazil's states.
Truckers argue a rise in diesel prices has cut deeply into their income and are demanding relief from the government. Diesel prices are being pushed up by higher crude prices and a weaker Brazilian Real.
On Sunday, President Michel Temer announced relief for diesel prices for about 60 days. Congress was holding a special meeting Tuesday to discuss a solution to the fuel crisis. Possible options include changing the current Petrobras pricing policy, as well as revising the Brazilian tax structure on fuels.
Below are some key highlights of the strike and its impacts:
PETROLEUM
Oil workers will start a 72-hour warning strike Wednesday. Workers are protesting higher fuel prices, Petrobras' $21-billion divestment plan for 2017-2018, and are also demanding Petrobras CEO Pedro Parente resign. Such warning strikes typically don't affect oil production or refining, but instead involve refusals to change shifts and work-to-rule measures.
No refinery shutdowns have taken place, but Petrobras has been forced to reduce refinery output because of growing stocks and a shortage of precursor chemicals as deliveries out of and into refineries were limited by the strike.
Brazil's fuel sales have been undermined by a lack of deliveries to service stations, where drivers waited in long lines to fill tanks. Imports are also expected to fall as truck traffic at ports was dramatically reduced.
President Michel Temer agreed to reduce diesel prices by 46 centavos and freeze prices at that level for 60 days. Diesel prices will then be adjusted on a monthly basis through the end of 2018 under the deal. The 46-centavo decrease accounts for the elimination of the CIDE and PIS/Cofins taxes on diesel sales.
The price cut will cost the government about Real 9.5 billion to reimburse Petrobras for the cost of the diesel subsidy. Petrobras' pricing policy for domestic diesel and gasoline will be maintained, with the government picking up the tab for the difference between domestic and international prices.
Petrobras adjusts diesel and gasoline prices at the refinery gate on a near daily basis in an effort to keep domestic fuel prices at parity with international imports. The policy was implemented in July 2017.
PETROCHEMICALS
Brazilian petrochemical producer Braskem has reduced output due to the strike.
Brazil is Latin America's largest producer and consumer of thermoplastic resin, with an annual polyethylene demand of almost 2.8 million mt/year of polyethylene and 1.45 million mt/year of polypropylene, according to S&P Global Platts Analytics.
Brazilian pulp and paper producer Suzano shut operations throughout Brazil over the weekend. Rafael Mastrocola, head of investor relations for Suzano, said Tuesday the company "as of now...have halted pretty much all of our sites."
While Brazil produces a significant amount of the resin consumed, it is also a heavy importer of plastics, and the logistics of moving those resins has proven problematic.
The strike was having a significant impact on customers who are unable to receive resin, or move finished goods -- items like plastic films and food packaging -- to their end users.
METALS
The Brazilian iron ore production unit of Companhia Siderurgica Nacional has declared force majeure due to the strike. CSN was also considering giving days off to administrative workers, according to a metallurgical workers union source in Volta Redonda city, where CSN is based.
The strike has disrupted domestic deliveries of steelmaking raw materials to local producers and of finished steel to domestic buyers since last week, while exports and imports are also backing up.
Steelmaker Gerdau in a statement said the strike was "harming its production, raw materials and finished-products deliveries." Its operations outside Brazil were running normally.
Several market sources said steelmaker Usiminas has halted production at its No. 1 blast furnace due to road blockades, but this was not confirmed.
Ferrous scrap dealers were becoming more worried about the situation and how the market will react in the coming days. Establishing prices is not the current focus, with supply and deliveries the main concern, they said.
"Big automakers are halting their operations because there is no material to work with," a scrap dealer said. "I cannot close any deals because I have no idea on how to deliver my scrap."
Brazil-focused copper and gold miner and developer Avanco Resources said Tuesday the strike and roadblocks had disrupted deliveries of copper concentrate from its wholly owned Antas mine. All Antas site activities are being scaled back to conserve fuel, and processing plant operations and most mining activities have been suspended.
Avanco has set copper metal production guidance of 12,000-13,000 mt for 2018, but the impact of the strike on its output has yet to be determined.
AGRICULTURAL PRODUCTS
As many as 220 mills in Center-South Brazil, the world's largest sugarcane and sugar producing region, have completely stopped operations this week, due to a lack of fuel, the Brazilian Sucroenergetic Forum said. There were 243 mills operating in the first half of May, according to the latest UNICA report published last week.
According to market analysts, the combination of strike-induced closures plus rainfall early in H2 May should translate into around 10 million mt of cane that won't be crushed, to a total of around 30 million mt. That is down from 42.65 million mt in H1 May.
The daily production of 300 million liters of ethanol and 250,000 tons of sugar is being impacted by the number of mills that are closed.
In the spot sugar market, the FOB premiums over July (N) Sugar No. 11 Futures have increased in value since the start of the strike. S&P Global Platts assessed Center-South VHP sugar for June shipment at a 14-point discount to the July (N) Sugar No. 11 Futures Tuesday, up seven points from Friday.
Brazilian sugar line-up from May 23 was pointing to more than 800,000 tons expected to be exported in May. However, a large part of this amount was expected to reach port areas via trucks. Some mills were reported to be releasing force majeure as it has not been possible to deliver the sugar into terminals.
Ethanol in Brazil is used in two ways - hydrous ethanol is used as fuel in flex-fuel vehicles and competes with gasoline at the pump when its price is 70% or less than the gasoline price. Anhydrous ethanol is blended with gasoline at a mandatory 27% ratio under a national mandate.
Regulator ANP announced as of last Friday it was allowing for flexibility in the mandatory mix of anhydrous ethanol into gasoline to as low as 18% from the current 27%.
