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Brazil: Lower Ethanol Blend Won’t Cut Gas Prices, Analyst Says

Brazil’s plans to cut the amount of ethanol that must be blended into gasoline may do little to lower the price of fuel at the pump, an analyst said.

The country will cut its ethanol blending rate to 20 percent by Oct. 1, from 25 percent now. The measure is aimed at ensuring there’s an adequate supply of the renewable fuel, which has increased 27 percent in price since June, Minister of Mines and Energy Edison Lobao said in a statement.

The plan won’t cut ethanol consumption enough to significantly drive down prices because bad weather is reducing sugar-cane production and the industry’s investment in new mills and plantations may not meet demand, said Salim Morsy, an analyst for Bloomberg New Energy Finance in New York.

“The effect this will have on final gasoline prices will be marginal,” Morsy said in a telephone interview yesterday.

Cutting the blend-rate will reduce demand for anhydrous ethanol, which is mixed with gasoline, by about 1.4 billion liters (422 million gallons) to 1.6 billion liters a year, he said. That’s about 6.4 percent of total ethanol consumption in Brazil.

Rising demand for fuel from Brazilian drivers boosted prices for anhydrous ethanol to 1.43 reais (90 cents) a liter on Aug. 26, up 27 percent from its June 3 low this year.

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