Brazil Accelerates Ethanol Blend Increase After Fuel Price Rise

Brazil plans to increase in May the amount of ethanol added to gasoline in a move that will help state-controlled Petroleo Brasileiro SA (PETR4) reduce fuel imports.

The amount of ethanol will rise to 25 percent from 20 percent, Energy Minister Edison Lobao told reporters in Brasilia today. He said earlier this month that the increase would take effect in June.

The government of President Dilma Rousseff brought forward the measure after clearing Petrobras, as the state-controlled oil company is known, to raise gasoline prices and reduce losses on imported fuels. The price rise will boost annual demand for ethanol by as much as 4 billion liters (1.1 billion gallons), according to Salim Morsy, an analyst at Bloomberg New Energy Finance in Sao Paulo.

Petrobras said after the close of trading yesterday that it will raise gasoline prices at refineries by 6.6 percent. That will also let cane processors including Cosan Ltd. (CZZ) and Sao Martinho SA (SMTO3) increase prices for ethanol, which competes with the fossil fuel at the pump, Morsy said today in an e-mail.

Ethanol producers, who discussed the change in the blend with government officials in Brasilia today, committed to increase output to meet higher demand, Lobao said.

Sugar prices climbed today amid speculation that millers in Brazil, the world’s largest producer, will direct more cane to ethanol production. Raw sugar for March delivery rose 1.8 percent to settle at 18.71 cents a pound at 1:46 p.m. on ICE Futures U.S. in New York. The commodity has slumped 22 percent in the past year on forecasts for a surplus in supply as output in Brazil increases.

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