BRASILIA Brazil's government has temporarily cut the mandated amount of ethanol blended into gasoline to 20 percent from 25 percent due to low supplies of the biofuel, the energy ministry said on Monday.
The reduction will be in force for 90 days from February 1.
Brazil mandates a blend of anhydrous ethanol in all commercial gasoline aside from the pure hydrate ethanol sold at filling stations for use in flex-fuel cars.
The 5 percentage-point reduction in the blend is expected to result in an additional 100 million liters (26.4 million gallons) of ethanol available per month, or around 7 percent of the monthly demand for hydrous ethanol, according to analysts.
Brazil's government occasionally adjusts the ethanol blend in gasoline within the range of 20 to 25 percent, which is determined by law, to adjust to local supplies and prices. The current 25-percent blend has been in effect since July 2007.
Producers and analysts said a 90-day reduction in the blend would have a limited impact on supplies and prices, and that the government's decision is an attempt to contain hydrous ethanol prices at the pump during an election year.
"The measure doesn't have any justification from the point of view of supply," said Plinio Nastari, president at Datagro analysts, referring to supplies of anhydrous ethanol.
Brazil is the world's biggest producer of cane-based fuel ethanol. Output in the current 2009/10 season fell short of expectations due to excess rains since June, which cut the concentration of sucrose in cane and reduced the time producers could work in the fields.
Mills were unable to gather around 50 million tonnes of cane which will now be harvested this year.
Moreover, mills prioritized sugar production over ethanol this season, as raw sugar futures were trading near their highest levels in over three decades.
This is the first time since 2000/01 that Brazil's ethanol output will fall from the previous season. Cane industry association Unica expects ethanol output in the center-south to total 23.4 billion liters, down from 25.1 billion in 2008/09.
Record demand for the fuel this year has also contributed to a steep reduction in stocks.
The decision was taken by the Interministerial Ethanol and Sugar Council (Cima) consisting of the agriculture, mines and energy, finance and development ministries.
(Reporting by Maria Carolina Marcello and Inae Riveras; editing by Jim Marshall)