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Petrobras Cuts Diesel Price to Ease Brazil Trucker Protest

Brazilian truck drivers blocked the BR-116 highway with their trucks during a strike in Curitiba, Brazil, May 21, 2018. The banner reads: "Strike! Without truck, Brazil stop, we can not continue. Brazil will stop, total stoppage, support us!"

Brazil’s state-led oil company Petrobras on Wednesday temporarily cut diesel prices by 10 percent in order to help the government and truck drivers resolve a protest crippling the nation’s highways.

The surprise decision, aimed at resolving a standoff threatening grain exports, industrial output and even fuel supplies at airports and gas stations, will bring immediate relief for angry truckers but raise investor concerns about government interference at Petroleo Brasileiro SA.

New York-listed shares of Petrobras fell as much as 7.5 percent in after-market trading, after closing 3.8 percent lower Wednesday.

Petrobas not ‘damaged’

Petrobras CEO Pedro Parente said the price cut, which will remain in place for 15 days and cost the company about 350 million reais ($96 million), had not been demanded by the government.

“The independence of Petrobras has not been damaged,” he said at a news conference explaining the decision. “It was an exceptional measure and does not represent a change to our pricing policy.”

Near-daily price adjustments at Petrobras have let the company track global prices and turn a profit on fuel sales after losing money for years at the government’s insistence, part of a turnaround that lifted shares nearly 90 percent since the pricing policy started last July.

While Petrobras’ price cut brings momentary relief to truckers, policymakers struggled to reach a more lasting accord during talks with the drivers’ representatives in Brasilia, who threatened to extend their protests into a fourth day.

It was the first such meeting between the government and truckers since they began partially blocking roads in several states Monday to protest surging diesel prices.

Soy exports at risk

Brazil is a key global supplier of grains, meat, coffee and sugar, most of which reach ports by road.

Concerns that the protest could halt shipments of Brazil’s record soy crop have contributed to the steepest rally in soy futures in 10 months in Chicago trading, with prices up 4.5 percent in four consecutive days of increases.

Oilseed trade group Abiove said some soybean crushers were suspending operations because of the protest. Sugarcane industry group Unica said certain mills had reduced harvesting work because of short fuel supplies.

Meat processor Marfrig Global Foods SA said Wednesday some of its plants are reducing or suspending output because of a lack of deliveries during the protest.

State airport operator Infraero suggested that passengers check with airlines on the status of their flights and warned carriers to check that there is enough jet fuel to refuel planes at airports before clearing flights.

According to Petrobras, state and federal taxes make up 29 percent of the final price of diesel paid by consumers. The average retail price of diesel is now 3.595 reais per liter.

Eliseu Padilha, President Michel Temer’s chief of staff, said policymakers had determined how to offset the elimination of the CIDE fuel tax, which represents about 1 percent of diesel costs. However, he said congressional leaders still had to find about 12.5 billion reais ($3.5 billion) in new revenue in order to halve for six months the PIS/Cofins tax, which makes up about 10 percent of diesel costs.