Petrobras: pricing policy may generate credit risk – 05/17/2023 – Market

Uncertainties about Petrobras’ new commercial policy may generate credit risk for the state-owned company, according to analysts at the risk rating agency Moody’s. The assessment is that, without a defined formula, the company can be led to losses by damming prices in the domestic market.

Among financial market analysts, one of the major concerns after the disclosure of the new commercial strategy is the possibility of the state-owned company having to assume imports at a loss in times of high international oil prices.

“The new policy is negative for Petrobras’ credit because it adds uncertainty to the continuity of import parity practices, which could lead to losses if Petrobras does not pass on volatilities in international oil prices to domestic fuel prices”, says Moody’s .

The agency’s report says it does not believe, at this moment, that Petrobras will deviate significantly from international quotations, since the market should remain under pressure, but still below the level reached after the beginning of the war in Ukraine.

“However, if macroeconomic variables such as the exchange rate or oil prices are stressed, Petrobras can hold price increases and have losses”, he says, recalling that the new commercial strategy of the state-owned company did not define a readjustment formula.

The concern is the same as that of analysts who cover the state-owned company, according to reports released after a teleconference with the company’s financial director, Sergio Caetano Leite, about changes in the pricing policy.

Leite reinforced analysts that the company will continue selling products with a profit margin, at some level between import parity and production cost, according to UBS BB analysts.

In general, the participants of the meeting affirm that the policy, however, will be truly tested in a scenario of rising international prices or an abrupt devaluation of the real against the dollar.

For UBS BB, the new policy has fewer “checks and balances” to force the company to raise prices in a scenario of skyrocketing oil and deterioration of the exchange rate, as occurred in 2022, for example.

“This can be seen negatively by the market and can put pressure on margins”, says the bank. “In addition, if oil soars and Petrobras remains structurally below par, the company may have to import to guarantee market supply.

“An analyst Daniel Cobucci, from BB Investimentos, has the same view. “If prices deviate too much from the international benchmark, there is a risk of shortages or losses by Petrobras on imports,” he wrote.

Private importers consider that the window for importing diesel has closed after the cut of R$ 0.44 per liter announced by the state-owned company on Tuesday (17).

According to Abicom (Brazilian Association of Fuel Importers), the average price of diesel in Brazilian refineries is R$ 0.12 per liter below the import parity. At Petrobras delivery points, the difference is greater, at R$ 0.14 per liter.

About 25% of the Brazilian diesel market is supplied with imported product.