Oil and Gas

UPDATE 2-Brazil to raise ethanol blend in gasoline to 27 pct on Feb 15

BRASILIA, Feb 2 (Reuters) - Brazil’s struggling sugar and ethanol mills got more good news on Monday after the government granted an expected increase in the national blend of the biofuel in gasoline to 27 percent on Feb. 15 from the current 25 percent, industry officials said.

The higher blend is the latest of several measures taken by the government expected to have a positive effect on the industry’s bottom line going forward.

In the past years, local firms such as Raizen , Biosev, Bunge, Sao Martinho and Guarani have struggled to post consistent and robust profits as rising production costs combined with government gasoline subsidies have squeezed mills’ margins.

Also improving the outlook for mills was the government’s January decision to raise taxes on gasoline starting on Feb. 1, allowing ethanol mills to raise prices in tandem and recover profit margins.

In recent years, the government of President Dilma Rousseff, concerned about consumer inflation, had zeroed out the taxes on gasoline and even subsidized the price of the fuel on the local market, prior to the fall in global oil prices in past months.

The president of Brazil’s cane milling industry, Elizabeth Farina, said mills had sufficient supplies of the biofuel to meet additional demand.

Unica requested that the government increase the official blend range over a year ago to slow the decline in the cane industry. As many as 83 mills of the more than 400 in the country have shuttered their doors since 2008 in the worst crisis in the sector’s history.

The greater demand for the biofuel is expected to help support sugar prices in the medium term, as mills divert more cane to ethanol rather than the sweetener.

Congress passed legislation in September authorizing the government to raise the maximum blend to 27.5 percent from 25 percent. Ethanol in gasoline can drop to as low as 18 percent in times of tight supply.

The increased blend of anhydrous ethanol comes during the inter-harvest of the main center-south cane crop, when supplies are normally tight and prices for the fuel tend to rise.

This year, however, ethanol producers held off on sales in 2014 and have stocked more of the fuel in anticipation of an increase in the blend and of improved prices.

Plinio Nastari, president of local cane analysts Datagro, said last week that ethanol stocks were currently at more than 7 billion liters, a 13 percent increase over last year. (Writing by Caroline Stauffer and Reese Ewing; Editing by Meredith Mazzilli)