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English Español Inflation, weak peso making life difficult for Argentina’s fuelling market

A lack of investment due to the devaluation of the peso, troubles between retailers and banks, and a shift towards CNG because of rising fuel prices are keeping the industry on its toes.

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With inflation at its highest since Mauricio Macri took power in December 2015, fuel prices have been soaring month after month in Argentina. In some areas of the country petrol prices have gone up by 42% in 2018 – an increase in oil prices and the exchange rate are key factors.

The loss of income due to a weak peso and heavy inflation has made Argentinians weary of fuel prices, avoiding to use their car if they can. Both YPF and Shell, the two leading retailers in Argentina, bumped prices up by 2% last week with diesel prices going up from 28,89 to 29,64 pesos ($0.80) and 36,65 to 37,50 pesos ($1.00) a litre, respectively. The average price for a litre of diesel was 11,81 pesos when Macri was elected president, almost a third of today’s rates.

For fuel retailers this hike has translated into lower margins. A key issue for Argentinian gas stations has become card payments, to the point where many retailers across the country have stopped accepting bankcards at their sites – they claim that with each transaction they are dumping 76% of the profit. This week the Conference of Entities of the Hydrocarbon Commerce of the Republic of Argentina (CECHA in its Spanish acronym) demanded the Government to intercede on their behalf in the negotiations with banks. On Monday they will be sitting down with Ignacio Wermer to discuss the two key topics: the period of accreditation (up to 28 days) and the fees payed by retailers.

Shifting to natural gas vehicles

Another effect of the rise in fuel prices has been a major switch to natural gas vehicles, according to Frank De Poli, Director of Elaflex Latin America – a major fuel pump manufacturer based in Buenos Aires.

“Argentina is rich in CNG, and the price gap between liquid fuel and CNG has grown from 22% a few months ago to close to 50%. That means that for the same amount of money a CNG vehicle can twice the distance. That has produced a huge demand for conversion kits to adapt liquid fuel vehicles to CNG,” explains De Poli.

Last month 15,783 new vehicles equipped for CNG were registered in Argentina, according to data from Enargas. That figure represents an 84% increase compared to same month of 2017.

Argentina is also one of the countries with the lowest ratio of service stations per car – there is one station for every 3,000 vehicles. That is significantly lower that its neighbour Brasil, where there are 2,200 per site.

However, do not expect new constructions or refurbishments any time soon. As De Poli points out, the devaluation of the peso makes investment in infrastructure in the short to medium term unfeasible.

The almost 5,000 petrol stations in Argentina are currently operate by three major mostly: YPF (56% of the market); Shell (20%); AXION energy (12%); Oil (3%), and Petrobras (5%).

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